Child Education is one of the biggest goals of parents these days because of the tough environment today and high expenses. Most of the parents start saving for Child Education from the birth of Child, which is a great. In this post we learn how you should evaluate the target cost of children Education and how you can achieve the targets within expected deadline. We are mainly talking about Higher education in this article . Most of the Companies come up with Child plans and other products which are nothing more than ULIP’s bundled with special features like Wavier of Premium option and some other features . However Planning for Child Education is not a big task and you can do it yourself, given you have some interest and eagerness to do it yourself . So following are the 5 steps you can do yourself to plan for your Child Education .
Step 1 : Set a Target Date
The first step is to find out the target date for the child education goal . I feel the that average age when a child goes for Higher education can be taken as 21 or 22 . You can take your own target tenure depending on your expectations and situation . If you are not yet married , then find out the estimated time left for you marriage and when you want to start your family (i mean children) and add target years to that number . For me personally it would be 4 + 21 = 25 yrs . what about you ?
Step 2 : Set a Target Amount in Today’s Term
The first step is to determine how much does it cost in todays value for giving education to your child. All of us have different aspirations when it comes to our child education, courses like MBA , Engineering , MBBS , Software related courses are on our minds . So lets say for example you determine that Rs 10 lacs is good enough to provide a good education to your child in today value. now you can jump to next step , but before that make sure you understand the effect of inflation on our Money . Here is another good article on Inflation
Step 3 : Find out the Amount you need on target date
Next step is to find out how much amount you actually need at the end . For this you first need to determine the rise in education cost per year . As per the recent numbers , Education costs are increasing at 10% per annum from last couple of years . A decade ago you could have done an MBA at 1.25 or 1.5 lacs , but today it costs more than 4 lacs . Thats more than the average inflation. Education cost in our country has been increasing at higher speed than other things . so you need to consider some figure . I would like to take this as 10% .
Now , you can just inflate the todays cost using simple compound interest formula. Understand Compound Interest and other important Formulas .
Target Amount = Amount today X (1 + rate) ^ Tenure
Example : Considering myself, The amount i would require today is around 8 lacs . My tenure is 25 yrs and rise in education cost I would like to take as 10% . So
Target Amount I need after 25 yrs = 8,00,000 X ( 1 + .10) ^25 = 86 lacs (approx)
So , I can see that I need to make around 86 lacs in 25 yrs . Please note that this figure is based on your assumptions . The actual Figure you might need may be less or more than this . But still this is good enough , as we have a plan at least and we are near the goal .
Step 4 : Estimate the return which you can generate over your investments
This is an important step . Each investor has a different risk appetite and knowledge . Depending on those factors one can choose different products for investments and can generate some return . One who is not much interested in finances and has lesser risk appetite can choose Balanced Funds or Debt Funds and can generate around 10-11% . On the other hand a person who can take more risk and have more interest in finances can invest in products like Equity Mutual funds , ETF’s , Direct Equities etc and can target close to 14-15% returns .
Getting more or less return is fine , All it matters is, does it suit your risk appetite ?. There is no point in investing in risky products if you are not a risk taker . As a rule of thumb , a person who is investing for long-term like 10+ yrs should take Equity route because over that kind of time frame Equity has performed the best with maximum returns and with small risk . So for long-term , Equity is what you should invest, and for short-term prefer equity only if you are great risk taker . Your range of return expectation should be from 8% – 15% . Anything above that is a bonus , but getting more than 15% is tough for general investors like us . anything like 20-25% should be target of more professional investors who have advanced knowledge and who are full-time into stock market and related fields . So better be satisfied with suitable returns which will be able to achieve your goals .
Understand Equity and Debt here
Step 5 : Calculate per month Contribution
The next step is to find out what is the monthly contribution you need to do . For this you have to use this scary formula.
C = [FV * r] / [(1+r) * { (1+r) ^ t - 1 }]
Where
- C = contribution per month
- r =Rate of return you expect to generate on your returns .
- t = tenure (It would be multiplied by 12 if payments are monthly)
- FV = Future value of your goal (this is calculated in step 3 .
You can Use this Calculator to calculate these figures . Just fill in your details and get the output . Now you can invest this money in product you have chosen.
Important Points to Remember
- Apart from these 5 points , there are other points you have to consider which will make your Child Education planning more strong and successful .
- Make sure you are Insured Properly , Because in between if you die prematurely , The amount of insurance your dependents get should be good enough to achieve your Child Education. Make sure you buy a good term insurance plan to cover this risk .
- When you are near the end of the goal , when still 4-5 yrs are left . You should better start with drawing your money from riskier products to more safer products , so that you do not get surprise drop in your Corpus . If another subprime crisis happens at the same time when your kid is ready to go to college, It will be a tough situation . So better start withdrawing your money every month from Riskier products to safer products .
- Make sure you review the performance of your Child Education plan every year and make sure that things are going as expected . If not , find out why ? See if you need to change your numbers , if you do , its fine . No one can plan for things in advance with accuracy and it’s totally find if things go little off track . Just be ready to adopt the changes .
- At the end , Sticking to this plan is the deciding factor of wheather you are successful or not . The consistency in Investing for this goal is the main thing. Returns will follow when you follow the plan .
- Make sure the Asset Allocation is right and make sure you stick to same asset Allocation .
- Make sure you do not force your Child to adapt as per your Plan . Make sure you don’t have anything rigid for Child . Let him/her decide what they want to do , You are mainly a motivational parent who are paying for cost of what your child wants to do in their life . A successful Child Education plan wont make any sense if he/she is not able to pursue what they are passionate of and love doing .
Conclusion
You have several products in market which claim to be Child Plans . They are costly and complicated for most of the general investors . The simple funda for successful financial planning is “Dont buy if you dont understand it”. Planning for Child Education can be a step by step designed simple plan which we can do ourself .
Please leave your Comments to let me know how did you like the article ? W hich one of these steps is the most challangeing part ? What do you suggest is the rough estimate of Child Education expenses today ?
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{ 134 comments… read them below or add one }
Manish,
Great article to enlighten all of us.. I was knowing this but was calculating the future value by taking the rise in education costs as just 7% ( the normal inflation rate we assume) . I feel, i will now have to recalculate and see which products i should invest in.
Shantharam
Nice . thats one common mistake done by everyone . We compund everything with common inflation . Its different for different things like Health Cost , Education costs etc .
So a good inflation for education cost would be 10% . So Shantharam , what investment products are you using for Child education ? Would love to hear your understanding on how we should take care of investments for Children education ? Are you using pure equity products ? Your comments ..
Manish
With this education rise at 10%, i have arrived at a mind boggling figure for my child’s education 15 years from now.
Intially, i had thought of a mix of equity and debt in the ratio 75:25. But now, i feel i should increase my equity ratio to 90% as the corpus required now is much higher .
I feel now i should go for Tax Saving MFs and PPF in the ratio 90:10. Generally speaking, we can go for even 100% on equity MFs as normally the requirement for child education is made atleast 15 years in advance.
In my case, i am opting for 10% in PPF just as a cushion to the equity shocks
Shantharam
Shantharam
What is your age ? What is the current figure for education you have taken, I would say take realistic figures . Some times you might end up taking some extra amount for “Worst case” . I understand that that is a good thing, but not always . If it takes 5 lacs for higher education today , then take 5 lacs only , not 10 lacs . that 5 lacs extra might look small right now . But then the same future value will be double
which is not a good thing .
So just make sure you have taken the right numbers . What is the saving you need to do per month as percentage of your salary ? is it more than 15% ?
Manish
Manish,
I took the most expensive education as of my knowledge in india which is ISB. I have information that is is 20 L-25L for full course (2 years).
If i see this figure and i want best possible education for my kid, then i have to calculate based on that figure. I/he can go for education loan that point of time but lets target for this figure and let see if we can acheive.
Thought i will not force him to go for MBA (He is just 18 months now), he can do what ever he want.. but to set goal i have to choose the best possible thing present in the market…
Thanks
Nitin
Yes Nitin
As a parent , you will plan for him as per the market best course . I say “best course” , because “best education” is not “best course” . A person’s best Education is what make him feel like doing it .
So I would say you can think about ISB . However I would say that you do with an average fees like 4-5 lacs, otherwise it can put lot of pressure .
What do you feel ?
Manish
Manish
Fully agree with you, Best course is not always best education. Ideally one should always look and try for best education.
Nitin
Why do you want your child to go for MBA ? I am asking this because you had MBA in mind ? Are you an MBA yourself ? If yes , I am amazed how can your be cruel
hehe .
manish
Nope , i am not having any MBA degree…
m in software field. And i am sure and certain that i will not allow him to go in this service indutsry software field ….:)
As I said was just taking the best available education cost for my calculation… nothing else….And again it is up to my son what he want to become in his life….. no pressure from my side…
very nice
i can understand why you dont want him to go to software .
manish
Thanks manish for such an helpful article. I think advance planning for child education and marriage as well is a crucial one to avoid stress in future and being trapped in unwanted situation where we have to take loans or borrow money to cover expenses. Its much more comfortable to set aside a small amount of money every month from now onwards than looking into the sky in future and praying to God for help
.-= Jagbir´s last blog ..Setting up mutiple MySQL Database servers on a single linux machine =-.
Amazing point !! .
Thats what financial planning means ,. Its all about “prepardness” . However small you save will help , we have to be ready for all the goals and Child education is so critical . What numbers are you taking for inflation and return expectations ?
What are the idea products as per your understanding to invest for Child Education ? Please share
Manish
I think it is too early for me to plan on this. Thanks for putting up a nice article. Will track back on this when required in future
.-= Mohan´s last blog ..Indiblogger Meet @ Bangalore =-.
Why Mohan ?
Why its too early ? Even if you are not married or planning for kid , you always have a rough idea when things are going to happen . The earliar you start . it would be good
.
So Mohan , do you think Unit Linked plans should be used here ? If yes , why ?
Do you think 7% is good assumption for inflation and 10% for education cost ? What do you feel ?
Manish
Thanks Manish for such a wonderful article…What is the best ULIP for wealth creation/investment purposes with minimal charges ? Both for self/spouse and for child
Thanks
Vikram
Vikram
Thanks , If you need the best ULIP , you should look at IRR of ULIP . More the IRR , better then ULIP returns . From IRR point , Aegon Religare ULIP has the highest IRR . Just 5% as allocation charges .
Why do you feel ULIP is right product for you ? are you not comfortable with Term plan + MF , PPF + ETF option ?
Do you have good understanding of Market movements so that you can utilize Switching facility ?
manish
Hello Manish,
Thanks for your reply. I was looking at the religare invest maximizer ulip suggested. It definitely has the highest IRR of 8.5% (assuming 10% returns). Could you please have a look at the Reliance Life Premier Term 10 plan. If you go through an agent it is 6% premium allocation and if you go directly to their office it is 3% premium allocation. No other premium allocation charges. With the other charges and 6% premium allocation, the irr came about 8.35%. It should be greater or close to 8.5% when 3% premium allocation is factored in. The best thing is 8 mutual funds all the way from money market to sector infrastructure. The religare had only 3. The performance of the reliance funds is much better than the religare funds atleast from the data I have seen. Can you have a look and suggest whether to go for it or not…I understand your argument about MF+Term Plan. I like it as well. I am thinking of starting this ULIP on my wife’s name and then 6 months down the road start my Term plan…I am an US based NRI, 29 years old and my wife is 22. I have been following your blog regularly…Too bad they dont offer iTerm for non residents…
Vikram
Its too tough for me to look at individual plans . You should review it using the education i have provided on this blog . It would be better than you get the ULIP with least allocation charges . The IRR of 8.5% is great . go for it .
Where did you find the IRR information from ?
Manish
The religare IRR for Invest Max Plan of 8.5% was listed on Outlook Money.
In my quest to find the cheapest and best value ULIP plan, I have been doing a lot of reading for the past 2 days now ever since you introduced me to the religare offering.When going through the religare news articles, in sep 2009, religare claimed they had the ULIP with the highest IRR and a cash award of Rs 1000 for anyone finding a better ULIP plan i.e one with a higher IRR. Now that offer does not exist anymore when I spoke to a rep.
This made me think…Can any other plan beat the 8.5% IRR benchmark set by religare… The following is the result of my investigation. I have learnt quite a bit on the quirks of the charges. The service tax component seems to be draining quite a bit. I didnt see any website complain about that…Thanks Mr Chidambaram.
The Reliance IRR is from their website via the benefit illustrator.
Unlike many other plans, the IRR for the plan sticks to 8.51 irrespective of number of years.
This I believe can be of great importance to investors.
For Time Periods => 15 years – Use Reliance Life Premier Basic Plan
= 10 years – Use Reliance Life Premier Term 10 plan
Go direct to the reliance office -> 3% premium alloc and that’s it for all the years
If you use a marketing/sales exec -> it is 6% for the 1st year and that’s it
So fill up the form and go to the reliance office for savings of 3%.
With 6% -> The IRR = 8.51%
With 3% -> IRR is roughly about 8.6% (my own calc using benefit illustrator example)
Also monthly maintenance is fixed at Rs 40 for ALL years. Fund charge not to cross 1.35%. Most of them are at 1.25% currently.
Manish, it might be good if you can write an article on this fund and compare it to the religare plan. It might be of great benefit for the readers. Just a thought.
The ability to switch between debt,cash and equity is of primordial importance. It will give great returns if timed very well especially while India is going through the transition from developing to developed economy. It will be volatile as hell.
You could use the reliance plan for retirement, child education what not…The mortality rate for infants/children will be very low so almost negligible comparing the returns.
The other benefit is less paperwork and keeping track of investments if everything can be accessed from one place.
The best of all 8 super funds from one of the best mutual fund houses in the market today. 52 switches between funds a year online and premium redirection by writing to reliance (painful).
Another tip is to redirect all the premium to a money market or “cash” like fund. Then switch as you please once a week. This will eliminate writing to reliance to change the premium redirects. Same with top-ups.
In this case of low premium allocation + top-ups , it might be better to have high premiums and and no top-ups as premium allocation charge ends after the 1st year (one time 3%). Top-ups charge 1% premium allocation charge…so having higher premiums will help offset the 1% charge except when you get say a big bonus at work and want to invest…
Hope this information helps someone…
Thanks again for the excellent blog Manish…
Vikram
Vikram
Wow .. I am amazed by seeing your detailed and long reply . I have 2 points
1. Apart from IRR , what is the fund performance ? How old is the ULIP ? If its just 1-2 yrs . Wait !! , We cant marry a girlfriend whom we know from 1 week !! .
2. I guess you have detailed review of the product . Why dont you draft it in a clean way with points . I will post it on your behalf as guest post ?
What do you say ?
Manish
Hello Manish,
It will be a real great pleasure to write in your blog…Anything that will help my fellow countrymen…I will get into the research of mutual funds offered in the ULIP next..Will call them up and see if I can find who the fund manager is and their track record even if the funds themselves dont have track records. The ULIP space is very new, so it is very difficult to get comparisons on fund performances. Reliance Mutual Fund is one of the best fund houses in the market and the choice offered is awesome…
… The google spreadsheet version doesn’t work! (b) My e-mail is vickypatta@gmail.com Can you send me your e-mail, so that I can send you the draft once my investigation is complete..Since it is going to be my first post, I want to include all the details and strategies I can gather…i will get you the draft this weekend…Thanks! Quite excited abt the whole thing now!!
2 things that will help me in this endeavor…(a) I know you had put together a spreadsheet to calculate IRR, if you can e-mail that to me, I can manually work out the numbers and verify the findings of Outlook Money/Reliance Websites. It is good to be an investigative journalist, you know
Vikram
I have mailed you . Thanks for your interest .
Manish
wellsaid !
true, thanks for this service.
thanks for this informative article , actually i have a kid 2 yrs old now, i was looking around for this kind of advice on your blog for some time , i have recently started reading Jago investor and now became a fan of your writing , one small query … when u advise to invest in equity market over such a long period in a systematic way , my only worry is over the period the equity exposure will be so huge that it raises a concern in one mind as to so much exposure in equity is correct or not , as for eg i have used your calculator to arrive at monthly contribution , which comes to Rs 14000 , now if i take a MF SIP where i invest rs 14000 every month for 18 years , then i am looking for face value of Rs 31lakhs by end of 18 years , which is a sizeable amount , only risk is ,can i manage such a huge exposure in equity market , if god forbids anything goes wrong in market or with MF company , then what ….Will one will be able to manage this over 18 years period.. so some times i feel that the plans offered by insurance companies are safe as they will manage and have a guaranted amount linked with and my kid will be nominee there, so if something happens to me he will get the benefit .. just a thought not sure if i am thinking in right direction .. kindly advise
Mukesh
Your concern is very thoughtful , it shows that you are really thinking it in detail
. Good job . If you read “Important Points to remember” dicussed at the end of article . You can see that I talked about “Asset allocation” and gave a link to article : http://www.jagoinvestor.com/2009/07/power-of-asset-allocation-and-portfolio.html .
If you read that carefully you will understand that
1. You have to do your Portfolio rebalancing every year atleast so that once your equity exposure increase than what you are comfortable with , it automatically gets adjusted . Its very important .
2. You have to find out what is your risk appetite and then decide our equity allocation .
When you goal comes near , then you start shifting from equity to debt . Which will happen anyways because over time your asset allocation will change (high debt and lower equity) and rebalancing every year will make sure you are on right track .
If you visualize the flow of how things will happen , you will realise that we have a strong structure
and the chances of failing is very very less 
Let me know if you understood things or not . If there are any doubts , feel free to let me know . No issues with answering more of doubts . Good luck .
Also let me know what are your views on investing in ETF’s and real estate .
manish
dear all,
child ulips are only marketing material only.
kindly remember that any child(minor) canot enter into any contract like life insurance.
life cover is for parents only, who can pay the premiums.
cash flows required for education, marriage etc.. can be mey only through investing in good places like mutual funds, gold, front line equity stocks only…
donot fall in ulip trap.
thanks
Srinivasu
I agree with your points that one should use Mutual funds , gold etc for planning child education . however ULIP’s are not that bad as you have mentioned . Just that they are unsuitable for most of the people . Why do you say that “kindly remember that any child(minor) canot enter into any contract like life insurance” .
Manish
sir,
kindly recall no minor (child) can enter into any legal contract like life insurance because as par indian contract act only a major s sign. is valid.
thanks for this service,
p.s ULIP are complex and needs some smart work before closing any deal.
life insurance agent/ advisors un biased views are required which in my personal view is some what difficult.
agents like MYSELF changed companies whenever my boss jumped or better incentives offered by other rivals.
a pure term plan is always easy and low priced.
Srinivas
Ok , But a minor can have the policy through a guardian , so indirectly they can enter, thats what I meant .
Very early for me reading this article but i did
… It helps you also take a general idea about investing… and Yes,.. Start early and i like thsi… “Dont buy if you dont understand it” 
.-= Amandeep Singh´s last blog ..How are the Interest- free days calculated for my credit card? =-.
Amandeep . Its better that you read this early . The amount of money you have to invest right now will be 50% of what it will be after 6-7 yrs . So better start early .
Are you are into Direct investing yourself . Do you think its a good idea of using direct stocks for this ?
Manish
excellent man, it is really an eye opener… i liked your calculation…. we can certainly revise inflation and expected returns to suit owns need…..
Hi Marshal
Like you said, over time we will have to see if inflation and expected return changes .Do you think 6-7% inflation is not a good measure ? What are your favorite products you want to use ?
Manish
hi manish,
Am taking 7% avg inflation and contemplating ELSS and ppf in ratio of 80;20
Marshal
Very smart
You have using the funda of using “tax products” for long term goals . Why dont u use some part in ETF’s ? You dont like golf ETF’s ?
75:15:10 in ELSS , GOLD and PPF can also be a good option . What do you say ?
manish
Hi manish,
I think at this moment gold is expensive in comparison to equities. I may churn portfolio in next cycle.
my funda is to buy cheap products that has some intrinsic value..
what say?
Cheers
Marshal
Well .. If you are ready to time the market and have interest in it . I would encourage to take decisions of buying and selling based on timing the market
You are a value investor . Thats good . Do you study GOLD ? What are the factors when you say that Gold is expensive today ?
Manish
Hi Manish,
yes i do have a little interest in market but not as a trader but as a investor(long term 3-5yrs horizon, MF and direct equities)….
with respect to gold, i don’t understand this product… what is the factor that will trigger growth in gold…this is what am not able to understand, so not going in this way..Why i said expensive, because too many buyers(individual, govt, banks, etc)…
what you say?
Cheers
Marshal
marshal
you have interest , but what about knowledge and expertise ? are your beating MF returns ? If not then it will make sense to take MF route .
Regarding gold , its a complex thing ,Dont look for it as primary investment option . not more than 10% . In the last 5-6 yrs it has given spectacular returns which might not happen in future .
What do you think ? Do you invest in Gold ETF ?
Manish
hi manish,
That’s a very good point to benchmark equities returns with mf, I haven’t done so far yet but I think it will be same.
No I haven’t invested in gold ETF, but yes physical gold by virtue of marriage and other occasions, and I think that way you can keep ur spouse happy
Marshal
Marshal
Better you see if you are able to beat MF or not ? Otherwise what is the point of hard work ?
You are right about Physical gold . but if its just for value appreciation then anything other than Gold etf’s is not optimal
Doubts ..
1. Did you put money in Gold bar/coin or jewellery ?
2. By how much are you beating the MF ? Why not use ETF’s ?
Manish
Very good article, As a new dad of twins, I am looking for options to save for the future of my little ones. I have started few SIPs so that there is enough money. But now I know exactly what it takes to have a bright future for them. Thanks.
.-= Chandoo´s last blog ..Excel Links – What are your plans for 2010 Edition =-.
Chandoo , Congrats for twins
What are the Funds you have used ? Does it allign properly with your risk appetite ? Are they equity diversified or sectoral ? Just concerned that the funds are suitable and not just great funds
Manish
I have been investing thru SIP route since I got my job in 2006. I have been using valueresearch rating (4 or 5 stars) and investing in equity diversified funds all along. I follow the good advice from people like you and have taken enough insurance cover last year.
The funds I am investing now are,
HDFC EQUITY FUND – GROWTH PLAN
HDFC TOP 200 FUND – GROWTH PLAN
SUNDARAM BNP PARIBAS SELECT MIDCAP – GROWTH
SBI MAGNUM BALANCED FUND – GROWTH
DSP BLACKROCK BALANCED FUND – GROWTH
SBI MAGNUM SECTOR FUNDS UMBRELLA CONTRA -GROWTH
Let me know if you have some ideas .. I would love to hear.
.-= Chandoo´s last blog ..Excel Links – What are your plans for 2010 Edition =-.
All are good funds . As per your age these are suitable funds . Not sure about your risk appetite
.
Just make sure you also use other tools like ETF’s , Gold ETF’s , debt funds , PPF etc . Do you have plans for it ?
Chandoo , How do you track all these things ? hehe .. I am sure you are using Excel
manish
IT takes around 2500 per month for primary education these days… fees is very high.
for higher education like medical, pilot etc it is 10-15 lac. So need to calculate accordingly.
This is good article on CHild Education Planning.
Vipin
Ya , these days primary education is a big concern . But in this article we are concerned about the future higher education costs as its a long term once time cost . School fees is a regular cost and we need to have a different planning for that .
Manish
Thanks for your quick response , actually i am out of india since last 4 years so i have very limited options , on the religare term plan also , it is not available for NRI at this time , on the property market my thought was that market is very hyped and there is no genuine demand , all the buyers are those who have excess cash at their disposal for investment so they are buying and pushing the market up , but since last 2 years market has gone up only , so i have been proved wrong and now even i am looking for a decent investment option in property market – thought of Ahmedabad as city , some one suggested that othersie i dont have any links , what u say , whast is your outlook on gold
Mukesh
the important question you have to ask is what is your return needs and expectations ? Only then you can find out the risk mix of products for yourself . There is no point in chasing 25% when you can achieve your goals in 12% . Once you do everything to acheive your 12% , then you can try extra for that 25% . I would say that if you are putting money in Equity , invest through SIP only .
Regarding Real estate , better think of place where you are going to live for long term .
Regarding GOLD. I am not very much excited in short term . No idea of long term view .
manish
Manish, another excellent article from you.
Why you say Ulip is not good. I have taken ulip for elder kid’s (4 yrs old) education. It is ICICI Lifetime Super. My investment horizon is 15 yrs. I guess if ur investment horizon is 15 yrs and you are aware of the charges, then ulips are suitable.
Also another thing what i dont understand when you say for long term equity is better. so incase i choose MF or equity, and invest around 10,000 per months (for example) and what if the the MF facevalue starts coming down after 10 or 12 yrs. I never understand this thing… so do u mean to say that after 10 yrs while re-assessing ur investment if you find out that mf value it coming down or has comedown to 50%, then u shift ur entire money to a new MF ?
Thanks manish for your clarifications.
Thanks Anu
Regarding “ULIP is not good for long term” , This is not true , what i meant was that its not a suitable product for most of the people . You must be understanding that ULIP is nothing but “MF + switching facility” . So if you are using that switching facility from safe to risky funds and risky to safe funds and have knowledge how to do that . In that case ULIP’s can be excellent products . but incase you have just bought them and just sitting idle , then you have not done correct thing . In that case you should do plain mutual funds .
Another thing is NAV of Mutual funds in long run, so generally in long run NAV should increase with fluctuation in short term , If you see SENSEX or NIFTY over long run , you can see it as a Mutual funds NAV , so it was small number earliar first , then it increases over long term , but there will be decrease in short term .
Manish
Dear Manish,
Nice Article..
I think you should publish Today’s Education Expenses of Various Leading Colleges & IIT Universities..Then Put Inflation Figure in ( % )….If you want I will provide…
I have also made Child Planner ( For My Son ) in PDF Format..If you want..pl send your E-mail ID…
Pl note my E-mail ID : nikhil201053@gmail.com
Keep it up
Nikhil Shah
.-= Nikhil Shah´s last undefined ..If you register your site for free at =-.
Nikhil
Please send it to me on mail
manish
hi
nikhil can u send me the child planner to my id, its :
vivek.chowdhry@gmail.com
thanks
Nikhil,
Pls send the same to me at aloksharma(at)gmail(dotcom)
Thanks.
Nice article Manish. In my case, today’s value is 8 lakhs and after 24 years future value will be 80 lakhs. I already started SIP of 5k with this goal in mind.
I feel Equity MF, ETF, PPF and term insurance are enough. No to ULIP.
just 5 years before the goal, I am planning to initiate Systematic Transfer plan to more safe debt fund or I will withdraw and keep depositing in the PPF account (opened in my name, child name, wife’s name) which matches with the target date.
Few questions
1. I am thinking of atleast 20% returns from Equity diversified MF (based on Valueresearch 10 year old equity diversified funds) Is it fair enough?
2. Can equity tax planning MFs are better than equity diversified funds in terms of capital security? (though returns are little less)
3. Tax exemptions for Equity MFs are allowed from past three years, but I see equity tax planning funds which are 15 years old? Why did they start Equity MFs with “Tax” name in it when it was not used for Tax exemption 10 years before?
Srinivass
Equity MF, ETF, PPF are good option , U should also consider Real estate , Gold etc also to diversify .
Regarding your questions
1. 20% return is little more than we should expect . Dont remember than in last 10 yrs we also had 2003-2007 , which were the mind boggling years in equity . So if you see overall 28 yrs , equity returns are in range of 16-18% , Better be little conservative .
2. Equity tax planning MFs are same as equity diversified funds . Just that you get tax benefit from them and the fund manager can use it wisely because he can take risk of locking the money in some good share .
3. I dont think so , ELSS were there earliar but the exemption limit was small (10k) . Where did you read that it started from last 3 yr only ?
Questions for you
————————–
1. What is your age and risk appetite ? Are you a risk taker ? If yes then you can try some direct equity .
2, Can you diversify in real estate ? thought ?
manish
real estate to me (other average income ppl) means owning a house, but in current situation buying a house in bangalore, i will end up paying huge EMIs for more than 20 years. please explain what do you mean diversify in real estate?
yes. 20% may be too much. on a conservative side we can expect 15% in equity diversified MF.
From the website, i read ELSS was added in 80C from 2005, http://www.hindu.com/2005/12/05/stories/2005120501181700.htm.
This is just a general question why ELSS existed long time ago..please share tax rebate of such year where ELSS of 10k rebate was allowed.
My age is 27 and risk appetite is above average. Yes I started direct equity as a resolution 2010. I am studying market report and investing in good stocks for long term.
Hey Guys, you are right about the inclusion under Sec 80C but earlier ELSS was present under Sec 88 which offered a 20 per cent tax rebate for investments up to Rs 10,000 with a three year lock-in period.
Vaibhav
Ohh .. so that 20% was a flat rebate ? tell more ?
Manish
Srinivas
by diversifying in real estate its very tough right now . But in coming years (1-2 yrs) , we might have REIT and REMF products in india , through which you can still participate in real estate growth with little money .
For now, you can invest in Real estate companies if you feel real estate can give good returns
Regarding ELSS , yes i think just the section name was changed from 88 to 80C and limit was increated to 1 lacs from 10k . If you know more please confirm and share
Manish
Great article Manish, agree that its safer to take inflation @ 10% instead of the 7% taken for retirement planning. My risk appetite hovers around 50-60% equity so I usually take only 8% return. An underestimate perhaps but I strongly believe in what you wrote:
“The key to happiness is low expectations”.
One thought for your calculator:
The interest can be made adjustable depending on asset allocation which would be the input
That is 100% debt –> 8%
100% equity –>14% (say)
and anything in between a weighted average.
Another possibility is reverse the calculator and accommodate variable monthly contributions. That is calculating corpus for 5000 p.m in 1st year, 5500 p.m. in 2nd year and so on.
This will also help people like me because I cant afford 11000 p.m. right now but only a couple of years later. So revising the calculator will help me determine modified corpus. I am trying to modify your calculator in this way.
Thanks again.
thanks Pattu
Why do you take 8% return when you have 50-60% allocation in equity ? What is your return expectations from Equity ?
Your idea of putting variable contribution is great
. I thought about it but didnt do it .
It actually makes sense . because over time a person salary will also increase and then he can contribute more then . Let me see . why dont you come up with that
Manish
Good idea to upload the calculator. As for me taking returns as 8%, I have invested in ELSS funds but I usually underestimate a lot. So that I am not disappointed in case my expectations are not met. Which is why I began my retirement and child planning very early to make up for the low return calculation!
Hehe .. You have hit the nail !! .
Expecting low and trying to keep your investments early is the best thing . Good one . But at some point of time dont you think if you underestimate or being conservative is forcing you to invest more than what you actually should ?
Your comments ?
manish
Another important issue wrt to child planning is cost of undergraduate and graduate education. Since graduate education costs are incurred 4 years after the start of undergraduate costs, if you you plan well those 4 years can be used for compounding.
Having a diversified portfolio helps in this regard. We have take part of the corpus for undergrad education and let it grow for grad education. If the child wants to go to a job after undergrad well the extra money could become your old are health fund or boost your retirement corpus!
Thats a good idea . the article teaches the idea , now each one can customise their plan as per situation
Manish
One past point reg graduate study. Being an educator I meet poor students who want to study more. I always encourage them to go for a PhD. This they will earn a handsome stipend pay their fees and send money home! In fact if you have bright kid and can afford study in the US encourage your kid towards a PhD instead of MS (if you think your kid can handle it). This way you don’t have to pledge your house and many people do these days for MS programs without scholarships in the US. This is complete Madness!
Nice point . I have 2 of my friends who are doing PHD in US and making some money also
.
But dont you think most of the poor students dont have the motivation for this . I mean they dont feel confident that they can also do this . I am totally with you on this one .
Manish
Manish,
Very good article as always, cleared lot of doubts.
Way to go….
Rakesh
Thanks Rakesh
How did this article help you . What part did you learn here ?
What products do u think will be good for you ?
manish
Hi Manish,
I am a regular reader of your articles and suggestions given to individual queries. I was really impressed by the way you had shown the inflation calculations and the excel spreadsheet was really useful to anaylze the requirement for the education of children.
As per your suggestion in the earlier articles, i am in the process of shortlisting around 3 -5 equity mutual funds for my child, so would it be wise to have 3 – 5 mutual funds.
It would also be great if you could suggest some equity Mutual Funds in the Equity Balanced, MIP, Sector Funds.
Regards,
Vinod.M
Vinod
Following two articles give you some good funds
http://www.jagoinvestor.com/2009/08/list-of-best-equity-diversified-mutual.html
http://www.jagoinvestor.com/2009/11/list-of-best-debt-oriented-mutual-funds-for-2009-2010.html
however, to find out different funds in different categories why dont you pick them up yourself . I have already taught how to do that in
http://www.jagoinvestor.com/2009/05/video-post-explaining-how-to-choose.html
http://www.jagoinvestor.com/2009/01/95-of-salaried-people-are-rushing-to.html
Questions for you
————————–
What are the best education courses we can give to our children ,. What did you think about your child ? What are the products you will choose and what are the concerns ?
manish
Hi Manish
Good one as usual..
I think the useful part is the quantitative bit which most of us hate to do..I looked at a figure of 7 L today as that is good for a decent and relevant education for my kid. Of course even with that figure the FV looks bit scary. My kid is 6 now and I have already started investing 18K pa (which is of course much lesser) in MF in his name. Will scale it up soon..
Any idea if I can open a PPF account in my kids’ name..
I have just managed to convert my LICs to paid up mode and am switching to term insurance. So will free up something there.
Regards
Chakrawarty
M Chakrawarty
Yes , you should bump up the investment , calculate the requirement and then start investing monthly .
Regarding your CHILD PPF , you can open one in your child’s name and you can become guardian . Just that the total tax exemption you can get from both of your contribution will be 70k ,
Good that you have made your LIC paid up . Its a good decision . Which policy you had ? What mutual funds do you think are good one ?
Manish
Manish,
Thanks for the info on PPF.
It took me a while to get LICs converted but finally done. I have three policies – Money back, Jeevan Shree, and Jeevan Suraksha..Am continuing with Money back as it almost run thru.
I have always believed in Diversified funds. I have mix of large cap, mid cap, marginally sectorial funds. Have been investing in HDFC Top 200,DSPBR Equity, Reliance Growth, DSPBR TIGER, and one balance fund in HDFC Prudence. For my kid I have chosen Birla Frontline Equity. Have Reliance Banking as miniscule component which was started to capitalise on Banking sector crash during 2008-2009.
One thought for people who have been considering education in US. There is a lot happening in educator sector in India and Govt’s heart is in the right place though pace is slow. Lots of good US universities are looking at India as next destination. Incidentally Harvard Yale and one more US University is looking at setting up innovation centres across country.
Regards
Chakrawarty
M Chakrawarty
All your funds are great . Do you think your LIC policies will be good enough for your retirement life ?
Manish
Nope my insurance is definitely not enough..I am addressing the same currently by going for term insurance..(now that i made my endowment plans paid up). I didnt scale this up till date as my wife is also working and well covered. and we dont have any liabilities currently in terms of loans or credit.
Regarding the education in US..I dont know how many people are considering the impact of forex. It might play a big role in undervaluing or overvaluing the planned figure.
In that case you should look for good term plans .
Regarding Forex issue .. You have a strong point which even I did not consider . Its tough to predict the forex movement and definately for long term . But we can guess that US dollar would definately get weaker and weaker over long term given India and China coming up as future super power
Nice point from your side . .Kudos ..
Manish
Hi Manish,
Good article. I was also planning for my son’s education, and did research on all the investments options available. I thought MF and Term plan combination works well because ULIP child plans were very expensive last year (as high as 60% PAC for the first year). But main problem I found with MF and Term Plan combination is that SA is given to nominee after immediately after the death of life insured. But while planning for child’s education, money is NOT required as immediately but is required only after certain number of years (because fund may be misused for some other purpose). I checked for a term plan that does NOT settle SA immediately but after the predetermined time, but there are no such plans in the market. Here child plans are better as the fund value is given only after the maturity of the policy. But disadvantage is that when the claim is made insurance company just invests future premiums to the funds as allocated by the owner of the policy when he/she was maintaining portfolio and it will not give right to switch funds by the nominee if he/she is minor and in the child plans usually nominees are minors. Let us taken an example of person who takes a child plan for 20 years and after paying premium for 10 years he dies and assume that he has all his funds in Equity. As per the policy insurance co pays SA to nominee starts investing future premiums in Equity. But during the 19th year if the market crashes, there will be major hit for fund value that child gets!!
Do you know of any solution for above concerns?
So as of now I am continuing with term plan and MF combination. Probably I may buy ULIP if all the above stated conditions are met because ULIPs are much flexible (as far as fund management is concerned because of the tool ’switch’) when compare to MFs.
Thanks,
-venkatesh
Venkatesh
If there are issues with Term + MF , let us find solutions for that and see how we can solve it. just take Term + MF will not solve all the problems . The main thing what we need is that Child education is secrured . this is the primary concern . So what will happen is that when you take Term + MF . there are two cases .
Case 1 : You never die : in this case at the end of the tenure you will have the required amount .
Case 2 : You die in between : In this case you cant contribute the future invesments , but your dependents wil get a big lumpsum amount (this will be quite big and has to be such that it can take care of all the needs) . Now from this insurance amount there has to be some part which can be invested lumpsum into somthing which can increase in value overtime and provide the final corpus when needed .
The calculation of how much it should be must be done by you
Doubts ?
Manish
Great Article,
I was very poor in these future planning, every time I read your articles get to know something new and add in my list.
EPF + Medical Insurance + PPF + Term Insurance + Planning for Child Education + Child Marriage + Retirement Plans + Gold ETF, Equity MF… am I missing something from my list, to secure my present as well as my future?
Brij Mohan
You are missing some things like
- Emergency Fund
- Tax planing
- Estate planning
Manish
Well, it should it be Child’s Marriage and not ‘Child Marriage’
hehe..
Hehe .. Good one . Humour on Financial planning blog is good
Manish
Another of your excellent post..Though the formula looks scary, but it is really nice to know about it. Sometimes one tends to forget about the inflation thing altogether but this post showed how much a difference it can make.
Thanks for such informative and encouraging writing!!
Hi Arwa
Nice to see your first comment here . Did the formula look that scary . Believe me these are the basic things one should know . I will soon try to come up with calculators
What are your views on inflation in long run say 30 yrs ? What are the best products you understand and are comfortable with ?
Manish
Hii manish, nice thought to come up with a few calculators
Regarding inflation, yes, in 30 years time it makes a lot of difference..It is one most important thing to keep in mind while doing any kind of financial planning.
I have basically read a lot about a number of financial products ranging from equities, to mutual funds, to gold, real estate, ETF’s etc. I got interested into finance a year back and then started my self study on it. Aim to become finacially literate enough to become my own financial planner..And ofcourse your blog plays an important role in this endeavour.
Great
Thats the mission for this blog . to make people aware of what they can do themselves . I am glad I have knowledgable readers like you on this blog . What other blog/sites you get your education from ? Any books ?
Do you also trade/invest in stocks ? What are your views on Markets in next 5 yrs ?
Manish
Thanks Manish..Its just the beginning I guess, long road to go.
Have read the intelligent investor, cash the crash, dhandho investor etc..What are the other books that you suggest?
Regarding 5 year approach, definitely I consider India as a fast growing market on the path of achieving even greater heights..It has the demographic advantage, people purchasing power, the industries, the zeal of the people and great entrepreneurs, also its not too dependent on exports, the fiscal deficit is under control..so I believe 5 years down the line India can go in only one direction – Up.
I am new to the space and keen on learning things!! Nice to connect with you here.
Arwa
I have not read all the books , just read a bit of Intelligent investor . I am sure india will go up for the reasons you mentioned .
Manish
Just to take part in this discussion,
Ultimately our goal is to provide best possible education.
Invest in India and take the education in foreign universities where inflation is low US,UK
If i take Harvard business school(forget abt the seat) ,with 3% inflation will end up with 77 Lakh rupees at @50 INR,ignore the INR appreciation.
Sandeep
That is great point . if your target is foreign universities then you can think about this , but what is the guarantee that your kid will make to foreign education .
Manish
.
I heard from someone that it takes 15 to 25 Lakh for an MS degree in US and for MBA its even more. Not sure if these numbers are correct or not.
If we assume it is correct , ambitious parents need to accumulate around 1 Cr to 1.5 Cr . 10% rise + 20 years to go.
If you look around, Parents normally arrange these amounts by taking loan ( most percentage ), selling property/gold and some are lucky parents who are RICH / Big Posts who can easily afford.
My question is , does anyone has a case study or real life experience of planning this long term goals and obstacles/Challenges faced during the the journey and also the list of mistakes made so that we can plan accordingly and learn from it ?
For me it looks like , it is very easy to say , we need to invest X amount of money every month for 20+ years in order to achieve this goal. But Life offer so many unexpected events which alters our plans from years to year.
Having said this, My plan is little different. I am planning to invest around 10Lakh in the next one year ( Thanks to minimum wage of USA ) with the hope that I can go near this magic number in 20 years down the line without much stress of investing monthly. Having said that i need a proper asset allocation + rebalancing and may be little funding every year
along with this long term plan, i think we need to invest in our own Career Development so that by the time we are X+20 years, we can reach good position in our career with the hope that Salary/Savings can easily fund these necessities.
Gopal
Regarding your question about MS or PHD , there is one thing you have to consider , the education inflation in US is not like India . Its around 4-5% in US. so the actual amount needed will not be 1 crore . It will be lesser .
The fact that till now parents have given education to their kids by selling property/GOLD and taking loans because they never planned for it . but we dont want to make our situation like that .
Regarding one time investment of 10 lacs and letting it grow . I would suggest that you invest this in Debt fund and then invest in equity through STP . that way you would not get shock if markets tumble very fast .
Also in our calculations we have not considered increase in income . so you have to factor that in also when you calculate it .
Manish
Mr Gopal,
I have my MS in the USA…I didnt spend a dime..It is not Rich/poor dad abt sending children to the USA..It is the will to succeed…The University offers jobs on campus and scholarships as long as the students have good academic merit.
My grandfather was a very very rich man but my father lost most of the wealth due to bad wealth management..I am trying to win it all back…It is not important just to save money for the children, I think it might be advisable if you can make them work for it and have them understand the value of the money right from childhood.
Yes, I plan for the future…But I have no plans in giving the children the money to blow away until they can prove that they can use it wisely… As Swami Vivekananda said “Plan for the future but don’t sink in it…” Just my thoughts…
“Plan for the future but don’t sink in it…” This is another problem I can see in todays world . People sometimes invest to much of their income that they dont live their present life . This is dangerous .
Manish
It is a great blog.
Thanks senmar
Are you a new reader or a quiet reader . What are the products you are comfortable with ? You invest in MF ?
Manish
Hi ,
I have HDFC youngstar plus II plan for my kid when he was 4 months old . its almost a year .
i have the option 20 or 25 free switches which i can make online between growth,eguity or balanced fund which is a good option .
Pls suggest for a good LIC plan for child’s education to balance my profile.
Thx
Pratik
Pratik
Do you know what is the IRR of this policy ? Are you competent to do switches efficiently ? Do you know what is the proper asset allocation for youself ?
Why you need a LIC plan only ? And what do you think about using standalone products like MF , ETF’s, GOLD to plan for child education ?
Manish
Hi ,
The agent had given working with both 6% & 10% per annum .
the IRR is as follows
A Assumed Investment Return 6.00% 10.00%
B1 Premium Allocation Charge 0.70% 0.81%
B2 Policy Administration Charge 0.42% 0.41%
B3 Fund Management Charge 1.32% 1.37%
B Reduction in Yield due to Expenses [B1 + B2 + B3] 2.44% 2.59%
C Reduction in Yield due to Cost of Risk Benefit 0.38% 0.37%
D Reduction in Yield due to Service Tax & Education Cess 0.31% 0.32%
E Additional Benefit in the form of Loyalty Units 0.11% 0.12%
F Additional Benefit in the form of Bumper Additions 0.00% 0.00%
G Net Reduction of Yield [ B + C + D - E - F] 3.02% 3.16%
H Return on Investment [ A - G ] 2.98% 6.84%
i have not done a switch bcos of the volatile market which was there .
after reading ur blog it seems the Sum assured for this policy is very less ( 3Lac) for 24k per year of premium which i’m paying .
I have other MF like HDFC tax saver (growth + dividend), HDFC equity and HDFc top 200 .
LIC for a secondary assurace .
Pls advise
The ULIP you are talking is not worth investing in that case . The IRR of 6.84% is too less with 10% return .
You should better take a Term cover and do goal based investing using other simple things like MF + ETF + PPF + FD + Gold ETF etc
What is your age ? I think you should have more than 50 lacs+ worth of insurance requirement which you can get in less than 10k per year . Rest you can invest .
Manish
Dear Manish ,
Thx for the advise .
also i’ve Aegon Religaire’s iTerm a good plan for 50lac for just 7k/mnt .
doubt is where AR will be after 25 years.
my age is 30 years , also the ROI of 6.84% is just a example given as it will vary as per the market , can’t i drive is with adding more percentage for equity fund for better return after 19 years .
also i’ve have 6k/mnt is HDFC MFs(top 200,equity,tax saver) , 4k/mnt in LIC jeevan saral and money plus and this 2k in HDFC youngstar plus II .
Pls advise as which is a good standalone child plan .
Thx.
AR is backed by Aegon which is strong in insurance field .Even if its not there, it will be taken over by something . So you dont have to worry that much .
Solvency ratio is there for this problem only .
ROI from ULIP may be different but still IRR is a unit to compare ..
There is nothing like Best policy . You to find one for your self .
Manish
Manish,
Good Explanation. I have 3 Year Daughter and for her education I have started Bharti Axa Equity Growth Fund in Daily SIP of Rs.300. Let me know this is good or not.
.-= Nilesh Panchal´s last blog ..Communication Skills for Children =-.
Nilesh
What was the reason you invested in that ?
Its a very new fund with no track record and its not from a good fund house , atleast not from a fund house with track record .
Anyone pushed you buy that ? or was it your decision ?
Manish
Hi Manish,
No body forced me to invest. Its my decision to invest in Daily. Why? I know its new fund. What are your views is my decision wrong?
.-= Nilesh Panchal´s last blog ..Communication Skills for Children =-.
Nilesh
As a thumb rule of mutual funds investing , we say that historical performance is a great indicator of future performance . So investing in a totally new fund which does not have a track record does not seem to be a good idea . Apart from that it comes from Bharti AXA , which has no famous history in mutual funds performance and can not complete with other AMC houses .
Note , it does not mean that fund is bad . It means you could have taken a better well knows funds . The risk is high here .
How does this daily SIP thing would ?
Manish
Dear ManishSir
Thanks alot for providing details
I have taken apolicy from Max New York Insurance endoqment-Whole Life Participating
to Age 100. I Have completed three year, please advice should i continue or withdraw.
Thanks
Saurabh
Saurabh
Mostly we are against any things which has “Endowment” or “Whole life” in its name . What are the rules as per policy documents if you stop after 3 yrs ? What are the long term returns from this plan ? Ask for the IRR from your agent or company .
Manish
I have noticed error in one of the excel sheets.
Child Education Contribution Calculator
This is what the sheet has
=(F5*H5/12)/((1+H5/12)*((1+H5/12)^(12*G5)-1))
And this is how it should be
=(F5*H5/12)/((1+H5/12)*((1+H5/12)^(12*G5-1)))
Please note the last parenthesis in formula, whole denominator is getting 1 substracted.
Hope you correct the excel sheet.
cheers.
Siddharth
Looks like there is some confusion . I think the formula is correct . So in the denominator “- 1″ part is for (1^t – 1) . where t = 12 * G5 because we want to make tenure monthly . So as per your fomula it will subtract 1 from G5 where G5 is number of years . Please recheck the formula is you are clear or not ?
Let me know if you agree, or may be i need to relook .
Manish
check out the image I will upload on twitter. that will show the formula in best format.
will post right now @chnmanish
cheers
ok got around posting.
heres the link
http://tweetphoto.com/9198898
Siddharth
Looks like the confusion is because of “payment in the start of month” or “Payment in the end of the month” . So normal FV formula in case you pay in the start of the month is
FV = A * (1+r) * [(1+r) ^ t -1]
Where A is the amount paid per month and r and t are rate and tenure . Now if you reverse the formula to find out per month A
It would be
A = FV / [(1+r) * ((1+r)^t -1)] . This is what I used in the formula .
Still the confusion remains .
Manish
Manish,
Thanks for reply.
the term t -1 is a single term right? the way excel treates this is different. Thats what I am trying to point.
whether you have (12*t-1) or just (t-1) its a unique item raised to the (1+r)
as you have said its tenure in months minus 1, but the way its in excel sheet its deducting 1 from total value of the denominator and not from the tenure only.
Siddharth
Ohh ok .. I got it now .. I never know that excel does not work that way
. I have made the changes to calculator 
. thanks for the contribution
Manish
HAI,
IT IS VERY USERFULL FOR THE PERSONS LIKE ME WHO WERE WORKING IN A INSURANCE COMPANY. THE PLANING WHICH U HAVE DONE FOR THE CHILD EDUCATION THE SAME STYLE CAN BE USED FOR SELLING ULIP. KINDLY HELP ME TO GET THE STEP BY STEP PLANNING FOR PENSION TOO WITH CALCULATOR AS YOU HAE GIVEN FOR CHILD PLAN.
Ansari
How can you use the same things for ULIP ? How do you think ULIP be better than MF + Term combination ?
Manish
Recently I started monthly SIP in HDFC TOP 200 (5000/-) and VIP in Benchmark S&P 500 monthly(3000/-). This is my plan for my 5 months old daughter’s higher education. VIP is a new concept introduced in india by Benchamark.
Shyam
VIP looks good at the moment . I am aware of it . you can continue with it . Just understand that you are taking a high risk instrument and you need to be with it for long term and dont get afraid with the short term fluctuations .
Manish
My plan is to continue VIP for 10 years, then after I will revisit it.. VIP investment is through ECS route.. One thing I found in regular investing is that, if I do through ECS, I tend to think less about fluctuations and not many worries about it… but if doing SIP through my broker, I found that I tend think of stopping SIP when things are going other way..the reason seems to be we check our account regularly and see what is happening to the investment, and the stopping SIP is just a CLICK away.. but if it is through ECS, some manual work is involved….
Shyam
Yes , that is a good reason . However we can check things only with VIP also ? NO ?
manish
Manish,
I am salaried employee who earns 45000 p.m. I do have icici life insurance cover for 20lakh. Took two pension plans with ICICI for 10000 & 15000(per year) respectively. I am married and blessed with a baby boy(4 months old). Planning to invest like this.
PPF –> 24000
MF –> 36000 (suggest me some funds)
Term insurance –> 50lakh cover ( suggest me which company is best )
is it advisable to continue to the pension plan., or you suggest taking the money out and investing else where?
Thanks, robert.
Robert
Regarding PPF + MF , the ratio of contribution is very personal and it will depend from person to person . If you are high risk taker , you can even raise the MF part . But overall it looks ok . See : http://www.jagoinvestor.com/2009/08/list-of-best-equity-diversified-mutual.html for a list .
term insurance is a tricky part , while I advocate taking the cheapest one in the market , it can again depend on your comfort level , are you fine with AR or SBI or any other non-LIC company , if yes , you can split your insurance with iTerm from AR and Another insurer .
Regarding pension plan , again its nothing but a Unit linked plan , which we dislike for reasons we have already discussed on the blog. your call .
Manish
There is a plan that Kotak AMC offers. Its called Kotak Starkid, it has all the advantages that you can find in an ULIP, without its drawbacks.
It works as an SIP. You ought to choose from their top performing funds Kotak 30, Kotak Opportunities & Kotak Taxsaver. You can choose a term of 5,10,15 or 20 depending on your age. There is an in built insurance with sum assured equal to the no. of SIP instalments pending. The reasons why i would recommend this over any ULIPs are:
- There are no charges other than expense ratio.
- The liquidity is far better than in most ULIPs, which have lock-ins & restriction on no. of times you can withdraw & the amount you can withdraw an one go.
- All the three funds are pretty old & have given good performance. Today probably no one know how good are the fund management skills of most of the ULIPs.
- In ULIPs, in case of parents death the future premiums get paid over the period of time, in this plan, the SA is paid upfront in lump-sum.
In ULIPs there is a lock-in period of at least three years, in this plan there is an exit load(1%) if you exit before 5 years. Hence if the fund doesn’t perform we can get out of it at minimum cost.
You can find more info about the plan from the following link
http://www.kotakmutual.com/kmw/product/kotak-StarKid-Facility.htm#
Sandeep Kulkarni
P.S.:I have invested in this plan for my daughter’s future.
Sandeep
Yes , its a good plan . The fact that its nothing but simple Mutual fund + Term insurance makes it good . You can do the similar thing seperately also if you want to diversify across other mutual funds .
Manish
hi manish, i recently got hooked to your site. must admit amazing articles in simplest possible language.
my query, I’ve some lumpsum to spare for my child education plans. child is 1 month and term i’m looking at is 20 yrs. I tried to do some calcs based on simple 10% annual returns….scenarios i took were lumpsum investment at yr1 or yearly investment till 20 yrs. the returns are phenominally higher if i apply lumpsum vs annual. now issue is what kind of product i should go for? i’ve a term insurance already planned so dont want to go for any cocktail products like unit linked child plans etc…any suggestion would be really helpful….
Sandeep
You should be looking at simple equity products like Equity MF , ETF or index funds . look at http://www.jagoinvestor.com/2009/08/list-of-best-equity-diversified-mutual.html to get some good funds . Dont forget to rebalance your portfoio every year or 2 yr to make sure your asset allocation is in place . Did i answer you ?
Manish
thanks manish. how are the investement plans like SBI unit plus III single….issue is i’m not very confident in applying lumpsum on my knowledge and not sure if i’ll get to follow when to rebalance portfolio etc….but one thing i noticed with SBI or another like Kotak single invest….they are charging heavily on charges….is that something going to be substantially lower if i directly apply for MFs
Sandeep
these are ULIP’s , dont get into these . buy plain mutual funds directly from fund house .
Manish
Again one more worth reading Article….
Apart from this i feel that situation will not be this much grim as we feel after 15-20 years as the government is working on education facilities, like they are coming up with some educational loan which can be repay at later stage at very less interest rate.
I feel that if a child want to get admission in his fev colleges then financing that will not be a issue and if somebody is passionate about his study then that guy will deifnitely arrange some money in a form of loan or so.
Here i am not trying to rule out the responsbility of parents to arrange money for child education.
Amit
Nice point , we never thought of this that in future Govt help can be a big relief and a big help
.
So do you think when parents plan for child education , they should factor in this fact that in future govt help will be there ?
Manish