When it comes to financial planning for your child's education, the most reasonable way is to start saving early, advises Pankaj Mathpal, Optima Money Managers.
When it comes to financial planning for your child's education, the most reasonable way is to start saving early, advises Pankaj Mathpal, Optima Money Managers. In fact, Mathpal believes that as soon as the child is born, parents should begin investing in small amounts as per their risk appetite which will help accumulate a huge corpus in the long term. It is also imperative to set a realistic goal as to how much money needs to be set aside for children's education, keeping in mind inflation.
"People should plan for long-term, invest small amounts regularly and as per their risk appetite, which will help them to achieve their goal," counsels Mathpal.
Below is the edited transcript of the interview on CNBC-TV18.
Q: An investor wants to invest Rs 1,000 per month. His time period is 2 years. His goal, which is children's education is Rs 50,000. What’s the advice that you would give him?
A: Children's education is long-term planning and people should start planning as soon as the child is born, so that small amounts invested regularly in long-term will help you accumulating a big corpus.
Since he wants to invest only Rs 1,000 per month that too for two years, in this market, I will recommend that he should invest this Rs 1,000 per month in a bank RD. Banks are offering around 9% p.a. return. Considering that if he invests Rs 2,000 per month in 24 months, he can accumulate around Rs 26,000. Secondly, he has only Rs 2 lakh sum assured in his insurance policy.
I recommend that he should buy a term insurance plan with adequate sum assured. So people should plan for long-term, invest small amounts regularly and as per their risk appetite, which will help them to achieve their goal.
Q: An investor can invest Rs 6,000-7,000 per month. His goal is child's education and retirement. How should he allocate the money?
A: It's good that he has bought adequate insurance. Secondly, since he wants to plan for child's education as well as for retirement, it is important to set a realistic goal first as to how much money he will need for retirement as well as for child education considering inflation.
If he considers Rs 25 lakh after 15-20 years it may not be sufficient. He should have a sufficient corpus for retirement. So Rs 6,000-7,000 what he wants to invest every month should be invested in mutual funds. A large portion should be allocated in equity mutual funds.
There are schemes like HDFC Top 200 Fund or ICICI Prudential Focused Bluechip Fund in his portfolio and some portion can be invested in gold saving fund like Reliance Gold Saving Fund or Kotak Gold Saving Fund. So Rs 6,000 divided in equity mutual fund, gold mutual fund or a small amount of around Rs 2,000 per month invested in PPF will help accumulating money for his retirement