Monday, November 18, 2013
5 steps to create your childrens education corpus
Posted on 10:11 PM by Nipul Parikh
Last week, we had touched upon the basics of investing for your child’s
education. One of the key takeaways was opting for instruments that can
beat inflation, such as equity funds (which invest principally in
stocks) for the risk takers and balanced funds (investing partly in
stocks and partly in fixed-income securities) for the slightly cautious.
Today, we shall look at ways to ensure that the fund selected meets your specific needs in terms of creating the corpus that will finance your child’s education 10 to 15 years down the line. For this, let us revisit the essentials of the concept and understand what makes these funds suitable for fulfilling this goal.
The fact that the returns provides by equity and balanced are far superior to investment options like fixed deposits, has been accepted and their ability to beat inflation, acknowledged. Investing in them is also considered to make a lot more sense than directly putting your money into equities.
Therefore, the next step is choosing the right mutual fund as your investment vehicle of choice and the task can be a daunting one. Given the problem of plenty that exists, this process requires setting out specific evaluation parameters to ensure an ‘apples to apples’ comparison.
Primary Objective
Is the fund looking at very long-term capital growth (ideal for retirement) or does it have a short-term perspective? Ensure the strategy is in sync with your medium-term goal to save for your child’s education. There are mutual fund schemes available, which cater to specific needs of building a corpus for child’s education. You may consider investing in them after checking the track record of those schemes as their objective is in line with yours.
Decision Driver
The experience and expertise of the person managing the mutual fund is a crucial factor. Moreover, he should have at least five years at the helm of that fund as it provides an adequate tenure to evaluate performance over a full market cycle. If there is a new manager, it makes more sense to go by his performance record than that of the fund. After all, you are in effect handing over charge of not just your money but the goals that it is expected to realise in the future as well. A fund that has the right person for the top job would be a better option that one that does not.
Analyst Ratings
Senior analysts evaluate the fundamentals in depth and take multiple factors into account when they rate a mutual fund, so that provides a fair idea of where to start off the selection process. Do not get influenced by blogs and posts from aspiring planners, go by what appears from established names and brands.
Track Record
While past performance is no guarantee of future delivery, the fact remains that funds with a sustained track record of year-over-year returns usually tend to do well going forward as well and vice-versa. Do not look at just the past year or two, check performance for at least 5 year period and above. Its only on the race track that the horse running last suddenly emerges in front and wins the race, financial markets follow a much more disciplined approach.
Assets under Management
Does the fund have the right balance of assets under management (too little means its its ability to invest is limited and a few big investors exiting could be dangerous, too high and its portfolio gets too vast due to limits on investing in individual company stocks) to achieve the kind of returns you need? Remember, larger funds can keep cost lower and have better research facilities, which play a key role in sustaining performance over the medium to long term.
Keep all these aspects in mind while choosing an equity or balanced fund. After all, its the corpus for your child’s higher education that is at stake!
Today, we shall look at ways to ensure that the fund selected meets your specific needs in terms of creating the corpus that will finance your child’s education 10 to 15 years down the line. For this, let us revisit the essentials of the concept and understand what makes these funds suitable for fulfilling this goal.
The fact that the returns provides by equity and balanced are far superior to investment options like fixed deposits, has been accepted and their ability to beat inflation, acknowledged. Investing in them is also considered to make a lot more sense than directly putting your money into equities.
Therefore, the next step is choosing the right mutual fund as your investment vehicle of choice and the task can be a daunting one. Given the problem of plenty that exists, this process requires setting out specific evaluation parameters to ensure an ‘apples to apples’ comparison.
Primary Objective
Is the fund looking at very long-term capital growth (ideal for retirement) or does it have a short-term perspective? Ensure the strategy is in sync with your medium-term goal to save for your child’s education. There are mutual fund schemes available, which cater to specific needs of building a corpus for child’s education. You may consider investing in them after checking the track record of those schemes as their objective is in line with yours.
Decision Driver
The experience and expertise of the person managing the mutual fund is a crucial factor. Moreover, he should have at least five years at the helm of that fund as it provides an adequate tenure to evaluate performance over a full market cycle. If there is a new manager, it makes more sense to go by his performance record than that of the fund. After all, you are in effect handing over charge of not just your money but the goals that it is expected to realise in the future as well. A fund that has the right person for the top job would be a better option that one that does not.
Analyst Ratings
Senior analysts evaluate the fundamentals in depth and take multiple factors into account when they rate a mutual fund, so that provides a fair idea of where to start off the selection process. Do not get influenced by blogs and posts from aspiring planners, go by what appears from established names and brands.
Track Record
While past performance is no guarantee of future delivery, the fact remains that funds with a sustained track record of year-over-year returns usually tend to do well going forward as well and vice-versa. Do not look at just the past year or two, check performance for at least 5 year period and above. Its only on the race track that the horse running last suddenly emerges in front and wins the race, financial markets follow a much more disciplined approach.
Assets under Management
Does the fund have the right balance of assets under management (too little means its its ability to invest is limited and a few big investors exiting could be dangerous, too high and its portfolio gets too vast due to limits on investing in individual company stocks) to achieve the kind of returns you need? Remember, larger funds can keep cost lower and have better research facilities, which play a key role in sustaining performance over the medium to long term.
Keep all these aspects in mind while choosing an equity or balanced fund. After all, its the corpus for your child’s higher education that is at stake!
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