Hi, I am investing 3.5 lacs every month in small and mid cap SIP for the last 2 years. My son will be going to study abroad. Should I fund his education from the MF or should I take a student loan and not touch the MF?

Ans:

I have attached my protfolio of MFs. Though I have been investing in MFs since 2005, I have been redeeming the same many times like in 2010 for house and in 2014 & 2017 for personal trips abroad with my family.

The present state of my MFs is given above. My horizon is for long and hence my questions are as follows:

Ans: Hello Satya . With multiple goal align in next 15 yrs. I would suggest to consider Large cap, small cap , midcap , and flexicap categories for your portfolio.

Ans: Spread the investments equally in the below,

ICICI Large & Midcap
Kotak Emerging Equity
Nippon Small Cap

Ans: Your investment approach shows a blend of optimism and strategy, much like a seasoned chef adding a variety of spices to create a flavorful dish. However, consider reviewing the concentration in mid and small-cap funds, which can be more volatile. A more diversified allocation across large-cap, flexi-cap, and index funds could offer a balanced flavor to your investment recipe, aligning better with your long-term goals. Remember, it's about achieving a harmonious blend rather than focusing on individual ingredients.

Ans: You have a noble goal to secure your child's education. Increasing SIP investments by 15% annually is a wise approach.

Systematic Investment Plan (SIP)
SIPs in mutual funds can offer substantial growth over time.

Benefits of SIPs
Compounding: Regular investments compound over time. This leads to exponential growth.

Rupee Cost Averaging: Investing a fixed amount regularly reduces the impact of market volatility.

Flexibility: You can start with a small amount and increase it. This matches your plan to increase investments by 15% yearly.

Liquidity: Mutual funds offer easy liquidity. You can withdraw funds when needed for your child's education.

Professional Management: Actively managed funds have professional fund managers. They aim to outperform the market.

Disadvantages of SIPs
Market Risk: SIPs are subject to market risks. However, long-term investments typically smooth out these risks.
Education Policy
Education policies are often insurance products combined with investment.

Benefits of Education Policy
Guaranteed Returns: They offer guaranteed returns. This provides a sense of security.

Insurance Coverage: They often include insurance. This can be beneficial in case of unforeseen circumstances.

Disadvantages of Education Policy
Lower Returns: Returns are usually lower compared to mutual funds. This affects the overall growth of your investment.

Less Flexibility: These policies are less flexible. Early withdrawal may incur penalties.

High Costs: They come with higher costs and charges. This reduces the net returns.

Why SIPs are Better
Higher Returns: Mutual funds, especially equity funds, offer higher returns. This helps in achieving the 1 crore goal faster.

Flexibility and Liquidity: SIPs provide flexibility in investments. They also offer easy liquidity when needed.

Professional Management: Actively managed funds can outperform market indices. This leads to better growth.

Investing Through a Certified Financial Planner
Professional Guidance: A CFP can guide you to choose the best mutual funds. They provide valuable insights and manage your investments.

Regular Funds: Investing through a CFP offers advisory services. Direct funds lack this professional guidance.

Disadvantages of Direct Funds
Lack of Advice: Direct funds do not offer advisory services. This can lead to mismanagement of funds.

Higher Effort: Managing direct funds requires more effort and knowledge. It may not be suitable for everyone.

Avoid Index Funds
Disadvantages: Index funds simply mimic the market. They lack professional management.

Lower Returns: Actively managed funds often outperform index funds. Fund managers adjust for market conditions.

Final Insights
Increasing SIP investments by 15% annually is a wise decision. SIPs in mutual funds offer higher returns, flexibility, and professional management. Education policies, while secure, provide lower returns and less flexibility. Consult a Certified Financial Planner for personalized advice. They can help create a tailored plan to achieve your goal of 1 crore for your child's education.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in