I am 44 years old with annual income of 12 lakh pa, I have a 8 year old daughter whose annual school fees is 1,35000/- how do I start investing and how much should I invest and where for future education and other expenses

Ans: Congratulations on your annual income of Rs. 12 lakh. Your daughter, aged 8, has a school fee of Rs. 1,35,000 per year. You have taken a crucial step by planning for her education and other future expenses. Let's break down the approach to create a robust financial plan for you.

Assessing Current Financial Situation
Income and Expenses: Your annual income is Rs. 12 lakh. Deducting your daughter's annual school fee of Rs. 1,35,000, you are left with Rs. 10,65,000 for other expenses and savings.

Monthly Breakdown: This translates to Rs. 88,750 per month. Your daughter's school fee equates to about Rs. 11,250 per month, leaving you with Rs. 77,500 for other expenses and savings.

Future Education Planning
Estimating Future Costs: The cost of education is rising rapidly. To estimate, we can assume an annual increase of 10% in education costs. This means by the time your daughter reaches college, the fees could be significantly higher.

Investing for Education: You should consider investing in a mix of debt and equity instruments. This balanced approach will help manage risk while aiming for good returns.

Recommended Investment Options
Mutual Funds: Actively managed mutual funds are a good choice. They provide professional management and can outperform the market. Avoid direct funds as they require extensive knowledge and constant monitoring. Instead, invest through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential. Regular funds through MFDs offer valuable advice and ongoing support.

Systematic Investment Plans (SIPs): SIPs in equity mutual funds can help you build a substantial corpus over time. Start with an amount you are comfortable with, gradually increasing as your income grows. This disciplined approach ensures regular savings and benefits from compounding.

Debt Instruments: To balance your portfolio, include debt instruments. Public Provident Fund (PPF) and Fixed Deposits (FDs) are reliable options. They provide stable returns and safety of capital, which is crucial for short-term goals.

Building a Comprehensive Plan
Emergency Fund: Ensure you have an emergency fund equivalent to 6-12 months of expenses. This will provide a cushion in case of unexpected events, preventing you from dipping into your investments.

Insurance: Adequate insurance is vital. Ensure you have a term plan covering at least 10-15 times your annual income. This will secure your family's future in your absence. Additionally, health insurance is essential to cover medical expenses.

Diversification: Diversify your investments across various asset classes. This reduces risk and ensures you are not overly dependent on one type of investment.

Detailed Investment Strategy
Equity Mutual Funds: Allocate a significant portion to equity mutual funds. Choose funds with a good track record and consistent performance. Avoid index funds, as they merely replicate the market index and lack the potential for higher returns through active management.

Debt Mutual Funds: Complement your equity investments with debt mutual funds. They provide stability and lower risk. Short-term and medium-term debt funds are suitable, considering the time horizon for your daughter's education.

Gold: Allocate a small percentage to gold. Gold acts as a hedge against inflation and market volatility. Gold ETFs or Sovereign Gold Bonds are preferable to physical gold due to better liquidity and no storage costs.

Education Fund Target
Goal Setting: Calculate the amount needed for your daughter's education. Consider her future aspirations, such as undergraduate and postgraduate studies. Adjust the target amount considering inflation.

Regular Review: Periodically review your investments and goals. Ensure they are aligned and make adjustments as needed. Stay informed about market conditions and economic changes.

Other Future Expenses
Lifestyle Needs: Beyond education, consider other future expenses like weddings, family vacations, and retirement. Factor these into your financial plan to ensure a comfortable lifestyle.

Retirement Planning: While focusing on your daughter's education, don't neglect your retirement. Start a retirement fund if you haven't already. The earlier you start, the more time your money has to grow.

Implementing the Plan
Consult a CFP: Engage a Certified Financial Planner for personalized advice. They will help you create and execute a detailed plan, ensuring you stay on track to meet your goals.

Regular Investments: Commit to regular investments. Automate your SIPs to ensure consistency. Regular contributions, even if small, accumulate over time and create substantial wealth.

Stay Informed: Educate yourself about financial markets and products. Understanding where your money is invested helps you make informed decisions and increases confidence in your plan.

Benefits of Actively Managed Funds
Professional Management: Actively managed funds are handled by professional fund managers who make informed decisions. They actively seek opportunities to outperform the market.

Potential for Higher Returns: Unlike index funds, actively managed funds aim to beat the market index. This potential for higher returns can significantly boost your investment corpus over time.

Risk Management: Fund managers actively manage risk by diversifying the portfolio and making strategic adjustments based on market conditions.

Disadvantages of Index Funds
Limited Returns: Index funds aim to replicate the market index. They do not seek to outperform, which can limit your potential returns.

Lack of Flexibility: Index funds have a fixed composition based on the index they track. This lack of flexibility can be a disadvantage in volatile markets.

No Active Management: Index funds do not benefit from professional management. In times of market downturns, active fund managers can make strategic decisions to protect your investments.

Final Insights
Creating a robust financial plan is crucial for securing your daughter's future. Start by understanding your current financial situation and setting clear goals. Diversify your investments across equity and debt instruments, ensuring a balanced portfolio. Engage a Certified Financial Planner to guide you through the process and provide personalized advice.

Regularly review and adjust your investments to stay aligned with your goals. Avoid direct funds and index funds, opting instead for actively managed funds through a reputable MFD. This approach leverages professional management and the potential for higher returns.

Remember, financial planning is a continuous process. Stay informed, disciplined, and committed to your investment strategy. Your dedication will ensure a bright future for your daughter and a comfortable lifestyle for your family.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in