FINANCIAL PLANNING FOR YOUR
CHILD’S FOREIGN EDUCATION
· Costs for quality
foreign education have been rising.
· A major variable is rupee depreciation.
· Another variable
is inflation, which silently keeps eroding your capital.
· It thus becomes
very important to start early for planning your child’s foreign education.
· Accumulating
wealth calls for long term planning, disciplined investing and having immense
patience.
· Do remember that
return "of" capital is more important than return "on" capital.
1. Pot-of-money approach
· Being an
important goal, one must have a separate pot-of-money approach for children’s
foreign education.
· It should not be
fungible and should be followed through with a lot of discipline.
2. Start early
· This gives your
investments a chance to compound and also keeps your outlay limited.
3. Decide on asset allocation
· One needs to plan
the debt-equity mix.
· This can be
arrived at by doing a risk profile which will help ascertain the risk appetite
of an individual.
· If the goal is to
plan for 10-15 years, one can consider starting with a higher allocation in
equity and, when closer to the goal, one can start moving into fixed income to
secure the corpus.
· Inflation is a
big drag on real returns and, hence, the need for the right mix of asset
classes can’t be over emphasized.
4. Systematic Investment Plan (SIP)
· Invest in SIPs of
good large-cap diversified mutual funds for longer tenures, and continue with
them without trying to time the market.
· In fact, downturns
are perhaps the best time to push up one’s investments.
5. Insurance
· Children’s
insurance plans offer protection coupled with capital growth, which is key to
secure the objective.
· They come with a
waiver of premium option, which takes care of future premium payment in the
unfortunate event of the proposer’s death.