The Hindu Business Line : Investing for children's education

It is best to commit yourself to SIPs only for one year at a time; a lot can change over a long period, including the shortlist of the best funds to invest in.

I am 33 and an executive in a PSU with gross salary of Rs 40,000 per month. I have my own flat and other basic amenities. My present savings are Rs 10,000 per month, which isinvested in provident fund and recurring deposits. I would like to invest in mutual funds for the higher education of my children, who are 4 and 2 now. Please suggest a few funds where I can invest Rs 3,000 through the SIP route.

Subhash Kumar

Assuming you need this money when your children turn 18, you have between 14 and 16 years in which to build a portfolio to meet their education expenses. As you are already ploughing a substantial portion of your savings into debt investments and also have a long investment horizon, it is a good idea for you to construct an equity portfolio for your children's education expenses.

We would suggest that you invest in monthly SIPs of Rs 1,000 each in three diversified equity funds with a good five-year track record. HDFC Top 200 Fund, Franklin India Prima Fund and Magnum Contra Fund would be good choices.

We suggest dividing the money between three funds because a single fund would be subject to risks of slippage in performance or management changes.

But please commit yourself to SIPs only for one year at a time; a lot can change over a 14-year period, including the shortlist of the best funds to invest in. You will need to periodically check back on the funds you own, to see if they sustain good performance. You can review your portfolio twice a year and weed out funds that trail the index by a significant margin. You could use suggestions from our mutual fund pages to rejig your holdings, in case any of the funds in the existing shortlist slip up.

You may also need to step up your savings levels depending on how much you want to save towards children's education.

A professional course, which costs Rs 5 lakh now, may cost about Rs 11 lakh after 14 years, at a 6 per cent inflation rate.

Assuming you would like to put both your children through professional courses, you are targeting a sum of about Rs 22 lakh at the end of 14 years. This would require you to save about Rs 5,200 per month, starting now.

With your present investment of Rs 3,000 per month, you can build a portfolio of about Rs 13 lakh at the end of a 14-year period. These computations assume that your investment in equities will earn you about 12 per cent a year.

They have managed a much better return in the past; a higher return will help you build a much larger corpus if you commit additional funds.

You can also take the help of the education planning calculator in the www.templetonindia.com Web site to work out your monthly savings requirements for different investment periods and target amounts.

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859-860, Anna Salai, Chennai 600002.)

Aarati Krishnan

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