Hi , I am working professional and income is 1 lakh per month . I have a son 10 years and wanted to plan for his education expenses in future.please help me which scheme is good for boy.

Ans: Given your focus on your son's education and your current financial situation, it's commendable that you've started a SIP of Rs. 4,000 per month. To ensure you can adequately fund your son's education, consider the following steps:

Review your budget: Analyze your expenses and see if you can increase your SIP amount gradually as your income allows.

Increase SIP amount: Aim to increase your SIP amount over time to accumulate a larger corpus by the time your son reaches college age. Even small increases can make a significant difference over the long term.

Invest in education-focused funds: Consider investing in mutual funds specifically designed to meet education goals, such as children's education funds or equity funds with a long-term growth focus.

Diversify your investments: Spread your investments across different asset classes to manage risk and maximize returns. Consider equity funds for long-term growth potential and debt funds for stability.

Regular review: Regularly review your investment portfolio and adjust your SIP amounts or fund selections based on your financial goals, risk tolerance, and market conditions.

By following these steps and staying disciplined with your investments, you can work towards building a sufficient corpus to fund your son's education and secure his future.

Ans: Considering your situation, investing in SIPs for your child's education is a thoughtful move. Look for diversified equity or balanced funds with a proven track record. Start with an SIP amount that comfortably fits your budget and gradually increase it as your financial situation improves. Focus on long-term growth and consider seeking advice from a financial advisor.

Ans: Understanding Your Financial Position
First, let me appreciate your disciplined approach to saving and investing. You earn Rs. 2.1 lakh per month and already invest Rs. 20,000 per month in mutual funds. Your existing savings in PPF (Rs. 18 lakhs), NPS (Rs. 7 lakhs), an HDFC policy (Rs. 9 lakhs), and PF (Rs. 38 lakhs) are commendable. This demonstrates a strong foundation for future financial goals, including your sons' education and your retirement.

Evaluating Your Current Investments
Your current investments provide a mix of safety, tax benefits, and potential growth. Here’s a breakdown:

Public Provident Fund (PPF): With Rs. 18 lakhs, PPF offers tax-free returns and safety. However, its long lock-in period limits liquidity.

National Pension System (NPS): With Rs. 7 lakhs, NPS is good for retirement due to its low-cost structure and tax benefits. But, it's not very liquid and has some equity market exposure.

HDFC Policy: The Rs. 9 lakhs in the HDFC policy should be carefully reviewed. Often, investment-cum-insurance policies offer lower returns due to high charges. You might consider surrendering this policy and reallocating the funds to higher-yielding investments.

Provident Fund (PF): Your PF savings of Rs. 38 lakhs are a solid, risk-free investment with decent returns and tax benefits. This forms a crucial part of your retirement corpus.

Investment Plan for Your Sons' Education
Given your sons are in 2nd standard, you have around 15 years before they start higher education. This time frame allows for a balanced investment strategy that maximises growth while managing risk. Here’s a structured plan:

Step 1: Estimating Future Education Costs
Education costs are rising, and it's crucial to estimate future expenses accurately. Assuming an annual inflation rate of 6% for education costs, let’s calculate the future cost of a four-year course.

Let's assume the current cost of a good quality higher education is around Rs. 10 lakhs per year.

Using the formula for compound interest, Future Value (FV) = Present Value (PV) * (1 + r)^n

Where:

PV = Rs. 10 lakhs
r = 6% (0.06)
n = 15 years
FV = 10,00,000 * (1 + 0.06)^15 = Rs. 23,96,000 approximately per year

For a four-year course, you will need roughly Rs. 95,84,000 for each son, totalling Rs. 1.92 crores.

Step 2: Investment Strategy
Systematic Investment Plan (SIP) in Mutual Funds: Continue your current SIPs and gradually increase them as your income grows. Actively managed funds can offer better returns compared to index funds, as professional fund managers aim to outperform the market.

Diversification: Spread investments across large-cap, mid-cap, and small-cap funds. This will balance risk and growth potential.

Equity-Oriented Child Plans: Consider mutual fund schemes specifically designed for children's future needs. These plans often have a lock-in period, ensuring disciplined saving.

Sukanya Samriddhi Yojana (SSY): If your sons were daughters, SSY would be an excellent choice for secure, tax-free returns. Instead, look for similar secure options tailored for boys.

Regular Review: Monitor the performance of your investments annually. Adjust the portfolio based on market conditions and changing financial goals.

Retirement Planning
Retirement planning requires a detailed assessment of future expenses, inflation, and life expectancy. Given your current age of 45, you likely have 15-20 years before retirement. Here’s a structured approach:

Step 1: Estimating Retirement Corpus
Estimate your monthly expenses post-retirement. Assuming your current monthly expense is Rs. 1 lakh, and you expect to maintain the same lifestyle:

Consider an inflation rate of 6%.

Using the formula for compound interest, FV = PV * (1 + r)^n

Where:

PV = Rs. 1 lakh
r = 6% (0.06)
n = 20 years (till retirement)
FV = 1,00,000 * (1 + 0.06)^20 = Rs. 3,21,000 approximately per month

You’ll need to plan for at least 20 years post-retirement. Thus, your annual requirement would be Rs. 3.21 lakhs * 12 = Rs. 38.52 lakhs.

For 20 years, considering the inflation-adjusted returns, you will need a significant corpus.

Step 2: Building the Corpus
Increase Contributions to NPS: Enhance your NPS contributions to benefit from its long-term growth and tax benefits. Diversify your NPS portfolio to include a balanced mix of equity, corporate bonds, and government securities.

Mutual Funds: Continue with SIPs in diversified mutual funds. Increase the amount periodically. Actively managed funds with a focus on blue-chip stocks can offer stability and growth.

Public Provident Fund (PPF): Continue contributing to PPF for its tax-free, secure returns. The long-term nature of PPF aligns well with retirement goals.

Employee Provident Fund (EPF): Maintain and possibly increase your EPF contributions if feasible. EPF offers risk-free, decent returns and is a cornerstone of retirement planning.

Health Insurance: Ensure you have adequate health insurance. Medical costs can erode your savings significantly. A robust health insurance plan safeguards your retirement corpus.

Step 3: Adjusting Investment Strategy
Reduce Equity Exposure Gradually: As you near retirement, gradually shift from equity to debt funds. This reduces risk and ensures capital preservation.

Diversify: Include debt funds, balanced funds, and government bonds in your portfolio. This provides stability and regular income post-retirement.

Review and Rebalance: Regularly review your portfolio. Rebalance it to maintain the desired asset allocation and adjust for market changes and personal financial goals.

Benefits of Investing Through Certified Financial Planners
Opting for regular funds through a Certified Financial Planner (CFP) has several benefits over direct funds:

Professional Guidance: A CFP provides expert advice tailored to your financial goals, risk tolerance, and time horizon.

Regular Monitoring: CFPs monitor your portfolio regularly, making necessary adjustments to optimise returns and manage risks.

Comprehensive Planning: CFPs offer holistic financial planning, considering all aspects of your financial life, including taxes, insurance, and estate planning.

Behavioural Coaching: A CFP helps you stay disciplined and avoid emotional investment decisions, which can be detrimental to long-term goals.

Administrative Support: Managing investments can be complex. A CFP handles the paperwork, compliance, and administrative tasks, allowing you to focus on your life and career.

Final Insights
Your disciplined saving and investing habits are commendable. With a well-structured plan, you can comfortably achieve your sons' education and your retirement goals. Focus on increasing your investments gradually, diversifying your portfolio, and seeking professional guidance to optimise returns and manage risks. Remember, regular reviews and adjustments to your financial plan are crucial to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You want to secure your son's higher education.

A Rs. 1 lakh investment plan can help you achieve this goal.

Let's explore the best investment options.

Benefits of Mutual Funds
Mutual funds offer good returns over time.

They are managed by experts.

These funds can help you build wealth.

Choosing Actively Managed Funds
Actively managed funds have expert managers.

They aim for higher returns than index funds.

This can be beneficial for your long-term goal.

Regular Funds vs. Direct Funds
Regular funds have financial planners to guide you.

They provide professional advice.

Direct funds lack this personalized support.

Certified Financial Planners can help you make informed decisions.

Importance of SIPs
Systematic Investment Plans (SIPs) spread your investment over time.

This reduces risk and averages out the cost.

SIPs make investing easier and more disciplined.

Consider Child Education Plans
Child education plans are designed for education goals.

They provide tax benefits and assured returns.

These plans ensure funds are available when needed.

Reviewing Insurance Policies
If you hold LIC, ULIP, or investment cum insurance policies:

Consider surrendering them for better returns through mutual funds.

This can provide a higher corpus for education.

Diversifying Investments
Don't put all money in one place.

Diversifying reduces risk.

It ensures stable growth for your investment.

Final Insights
Investing Rs. 1 lakh wisely is crucial for your son's future.

Choose actively managed mutual funds and SIPs.

Consider regular funds for expert guidance.

Review and adjust your investment as needed.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in