The Hindu Business Line : MF scheme for educational needs

Am I saving enough for my kids? Are my methods correct? Will my progeny be financially literate, well enough to make the right choices? These are questions that have haunted parents right through the generations, leading to issues that are often too complex and difficult to address.

In case you are wondering why we are discussing a subject that is best left to mom-and-pop combines, let us tell you that our immediate provocation is an innocuous offer document filed by a mid-sized fund house, apparently aimed at investors who wish to park money for their children in a close ended fund.

For mutual fund watchers, Tata MF's new proposal will probably drive home a point or two. One, there is really no specific group of children's savings & investment products in the realm of asset management that is worth mentioning. Two, fund houses have in the past rarely made an effort to educate investors (read: parents) to plan for their offspring.

True, there are a handful of schemes that carry tags like `child gift plan', but there is no organized attempt to turn these into serious propositions. The players that indeed offer these include Prudential ICICI, HDFC and Principal. Clearly, the asset management industry expects clients to choose from among normal diversified products even when they are doing this for the sake of their children.

The result is for all to see. The self-styled children's funds are bogged down by low asset bases, underlining the fact that these do not have too many takers. Interestingly, there is practically no specific savings product for an investor who intends to stay put for, say, 15-20 years.

Let's view this against a few facts of life. School fees are rising faster than you think. Even the near-by playschool charges a hefty entry fee these days. Your college-going 19-year-old wants to get into a premier institution once graduation is completed. Higher education (management, medicine, information technology et al) is becoming costlier by the day. A visit to a nursing home may drain your wallet. Even the family physician is charging you more for treatment. For parents, all this translates into a major lesson — they must necessarily save and invest more for their kids' future.

A quick word about the Tata MF proposal may make things clearer. In simple terms, this is a 10-year fund with two plans, one focused on equity and the other on debt. These are identified by two catchwords — Investment and Savings. The first may normally allocate at least 65 per cent in equity, while the second may put in up to 70 per cent in debt and money market instruments.

Before we end, let us tell you that investing for college is already a big thing in certain advanced countries, the US included. Check out what some of the leading overseas players have come up with in recent days and you will get a good idea of what has been happening in their markets.

Take, for instance, Franklin Templeton, which has college savings plans. There are what FT calls `tax-advantaged college investing vehicles', aimed at children who are getting older and approaching college. In some cases, age-based investing allows portfolios to be automatically re-allocated. Often a portion of the assets goes out of equity funds into more income-generating funds. With time, this allocation becomes higher.

Feedback may be sent to nilanjan@thehindu.co.in

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