Khota Paisa

How To Plan Your Child’s Education?

Posted in Child Insurance by khotapaisa on June 6, 2009

When I was doing my child’s education planning, I did a lot of reading only to realise that there was no clearcut answer. After a lot of calculations & analysis, I settled for a combo of Child ULIP and PPF. Why? Well let me explain it to you.

The idea behind child education planning is that we look for ways to invest money which cover all the following three requirements.

– Insurance (make sure child gets money no matter what)                                        

– Return (ensure that the investment grows well)                                                          

– Minimal risk (Take minimum risk in investment)                                          

Clearly, no single investment avenue can provide all the three. So you can  choose three instruments and combine them to get your child education portfolio. The first requirement will be met by buying a child insurance plan. The second one can be met by investing in equity or preferably mutual fund(s) while the third one can be met by investing money in a debt instrument. Since child education is requires long term investment planning, what better than the good old PPF.  To make it simpler you can combine the first two into a ULIP based child plan. Now the portfolio consists of –

ULIP based child education plan
– PPF

Since both the investments are preferred for a minimum duration of 10 years(ppf for 16 years), this portfolio is recommended to people with kids younger than ~8 years.
As an example, a monthly investment of Rs.7500 (5000 in ULIP & 2500 in PPF) should give you a corpus of about 35Lacs after 16 years.

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2 Responses

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  1. Pawan said, on August 5, 2009 at 2:32 pm

    Hi,

    I like your thoughts and very much impressed the way you explaining things.. Its really good to new comers like me…

    Now my son is 3 yrs old and on his 3rd birthday (Aug 2009), I took HDFC Young Star (ULIP) with Premium – 100,000/- per annum. But after taking this ULIP my friends are saying that this is not good investment. ULIPS are very expensive and useful. Please advise me. Shall I continue or not?

    Waiting for your respsone…

    Thanks,
    Pawan

    • khotapaisa said, on August 5, 2009 at 4:20 pm

      Your choice of child ULIP is good. ULIPs are costly and that’s why it is recommended to invest in ULIP for long term. Keep invested in your child plan and make sure that you pay your premium till the policy term (forget the 3 year premium clause). Another point to keep in mind that at this early stage, you should select the fund option with max. equity exposure.


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