hello Mr Ramalingam, my elder son is studying in class 9 this year and we are planning to send him for higher studies in UK or US for which i am planning to generate corpus of 2-2.5 cr. please help me to make goal related mutual fund investment pack for the same. i wish to invest in the name of my wife and nominee as my son for this goal. i can invest upto 5 lakh per month. please suggest. thanks.

Ans: You have taken a very thoughtful step for your son’s future. Planning early for overseas education is wise. Creating a goal corpus of Rs 2 to 2.5 crore is realistic with disciplined investing. Your capacity to invest Rs 5 lakh per month gives you strength to reach the goal smoothly.

Below is a comprehensive investment roadmap with 360-degree view for your child’s higher education.

» Importance of goal clarity
– You have a clear goal: higher education in UK or US.
– The target amount is well defined: Rs 2 to 2.5 crore.
– Time horizon is around 7 to 8 years as your son is in class 9.
– A defined goal helps in right asset allocation and disciplined investment.

» Role of disciplined investing
– Investing Rs 5 lakh monthly creates a powerful compounding effect.
– Systematic investment ensures cost averaging and market discipline.
– Goal-based allocation avoids emotional investing and panic exits.
– You will remain focused as the investments are tagged to your son’s education.

» Choice of investment ownership
– Investing in your wife’s name is practical and tax efficient.
– Nominee as your son is sensible and ensures smooth succession.
– Tax incidence will be in your wife’s name which diversifies family tax liability.
– Ownership clarity avoids disputes or confusion in future.

» Equity mutual funds for growth
– Equity funds create wealth over 7 to 8 years horizon.
– These funds can provide returns higher than inflation.
– You need diversified large cap and flexi cap exposure for stability.
– Mid cap allocation gives higher growth potential but with some risk.
– Balanced allocation within equity avoids excess volatility.

» Debt mutual funds for stability
– Debt funds give stability and reduce overall portfolio risk.
– They provide regularity, low volatility and capital safety.
– They are suitable for short-term withdrawals closer to goal.
– Including debt funds avoids equity-only risk.
– Staggered shift from equity to debt secures your corpus in later years.

» Hybrid mutual funds for balance
– Hybrid funds combine equity and debt in one scheme.
– They provide automatic rebalancing between growth and safety.
– This reduces the stress of monitoring allocation frequently.
– They are a smoother ride for moderate risk investors.
– Useful when you want steady growth without high volatility.

» Active funds vs index funds
– You should prefer actively managed funds for this goal.
– Index funds only replicate market and cannot beat it.
– Index funds expose you to full downside during market falls.
– Active funds are managed by skilled fund managers.
– They help with risk control and potential to generate alpha.
– For education goals, safety and superior management are more important.

» Regular plan vs direct plan
– Direct plans look cheaper but come with hidden disadvantages.
– In direct plans, you miss out on the guidance of a Certified Financial Planner.
– Lack of professional monitoring may derail your goal if markets fluctuate.
– Regular plans through CFP and MFD provide strategy, review and corrections.
– The cost difference is minor compared to the value of expert guidance.
– Regular route protects your emotions and discipline over long years.

» Asset allocation strategy
– In initial years, 70 to 75% can be in equity for growth.
– Balance 25 to 30% can be in debt and hybrid for stability.
– As you near the goal, gradually reduce equity exposure.
– By last 2 to 3 years, move majority into debt for protection.
– This systematic reduction is called goal glide path.

» Taxation awareness
– Equity mutual fund gains are taxed favourably.
– Long term gains above Rs 1.25 lakh taxed at 12.5%.
– Short term gains taxed at 20%.
– Debt mutual funds gains taxed as per your income slab.
– Tax planning is important as your redemption amount is large.
– Spreading redemptions across financial years may reduce tax burden.

» Importance of review
– Annual review of portfolio is very important.
– Market conditions, fund performance and personal circumstances change.
– Regular reviews help in timely course correction.
– Rebalancing ensures your portfolio does not deviate from planned allocation.
– A Certified Financial Planner can track and guide these reviews.

» Risk assessment and management
– Overseas education cost is rising faster than local inflation.
– Currency risk adds another layer of uncertainty.
– Adequate equity allocation manages rising costs.
– Debt allocation controls downside during currency shocks.
– Balanced approach manages both growth and safety.

» Insurance and protection
– Adequate life cover is very important when planning child education.
– In case of any unfortunate event, your goal should remain secured.
– Pure term insurance is the best tool for protection.
– Avoid mixing insurance and investment in same policy.
– Sufficient health insurance also avoids medical cost eating into savings.

» SIP and STP advantage
– You may spread Rs 5 lakh monthly into systematic plans.
– SIP in equity funds creates rupee cost averaging.
– STP from debt to equity helps if you want gradual entry.
– These strategies reduce timing risk of lump sum investing.
– Consistency in SIP gives compounding edge.

» Corpus protection near goal
– As your son enters class 11 or 12, corpus will be significant.
– At that stage, shifting major portion into debt is wise.
– Equity volatility can wipe off gains if left unprotected.
– Securing the corpus ensures education funds are available when needed.

» Behavioural discipline
– Market cycles may tempt you to stop or withdraw.
– Sticking to goal and process is key to success.
– Avoid reacting emotionally to market corrections.
– Remember, you are investing for your son’s future, not for short-term thrill.
– Having CFP by your side ensures discipline and motivation.

» Currency planning
– Future education will be in USD or GBP.
– Rupee may depreciate over 7 to 8 years.
– Equity returns compensate for currency depreciation.
– You can also keep some part in international funds for currency hedge.
– This reduces the risk of rupee weakness impacting your goal.

» Cost estimation of education
– Current overseas cost may be Rs 1.5 crore or more.
– With inflation, it can reach Rs 2.5 crore in 7 to 8 years.
– Your investment capacity is well aligned to reach this cost.
– However, keeping cushion is safer for unexpected increase.

» Documentation and nomination
– Ensure mutual fund folios have your wife as first holder.
– Nomination should clearly mention your son.
– Keep a record of folios, SIP mandates and redemption plans.
– This helps in smooth execution when time comes to use the funds.

» Psychological assurance
– Education is the biggest gift you can give your child.
– Your preparation will reduce his financial burden in future.
– A clear roadmap gives you peace of mind and confidence.
– Regular review with CFP keeps your plan on track.
– Your son’s dream will not be hindered by financial shortage.

» Finally
– You have taken the right first step with clarity and commitment.
– Investing Rs 5 lakh monthly in mutual funds can create required corpus.
– Active equity, debt and hybrid mix with regular guidance is essential.
– Use SIP, STP and gradual asset rebalancing for smooth journey.
– Tax planning, insurance cover, and currency hedge strengthen the plan.
– With discipline and professional monitoring, your son’s education goal is very much achievable.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment