Diversified equity scheme or index scheme for children’s education

Retirement and children’s education are the biggest worry of young parents in metros these days. Financial advisors say most queries they receive are related to these two crucial issues. It is rare to find a parent who hasn’t thought of or bought a children’s insurance plan. Children’s education is one of the top priorities of urban couples these days. They rightly believe education will be a costly affair; especially if the kid wants to study abroad. However when it comes to planning for the event, only some get it right. Most people buy the wrong products without realizing that they won’t be able to achieve their goals. Wrong products may range from fixed deposits and public provident fund to insurance plans. Interestingly, these experts are unanimous that the equity route, especially via mutual funds (MF), is preferable to fund the child’s long term needs.

Parents make long queries who want to plan for their children’s future. Though many people opt for insurance products, there are several others who go for mutual funds. Wise invest Advisors, a wealth management firm. They ask them to take the equity route generally if it is a new born baby or a very small child. This is because they can benefit from the possibility of higher re turns and power of compounding during they accumulation phase.

There is a plethora of schemes in the equity universe. How does one go about it? For example, you have the option of large cap funds, mid-cap funds, diversified schemes, index schemes, sectoral and thematic schemes among others under the equity umbrella it would be recommended a diversified large cap scheme. One should also avoid thematic schemes that may not last longer as we are talking about 15 – 20 years here. Other experts too advocate index schemes as an option for novices in the stock market. Since many of these young parents don’t have the experience of investing in stocks, they can go for index schemes with low tracking error (the difference between the index and scheme’s performance) and lower cost, says the wealth manager. Index schemes invest in stocks that form a particular index, that too in the exact weightage each stock has on the index. It is a passive form of investing and considered a cost effective option.

There are a few things experts want you to remember while investing for children. One, always pick up a scheme that has been around for at least five years and been a consistent performer during bull and bear phases. Never go for flash in the pan kind of performance. You should make sure the scheme is actually looking to generate long term returns rather than taking unnecessary risks to post huge returns during a particular phase, says the wealth manager. Take the money out of equity investments and park it in a safer avenue at least three years before the actual event. Once you have accumulated the corpus, you should focus on preserving it till the actual event. You can use the entire corpus if you have to make lump sum payment or use the proceeds from it to fund regular fees.

No Kidding with Junior’s Education:

1) Child’s higher education is top priority for urban parents
2) Many parents rely on wrong products to achieve the goal
3) Equity route is considered best if you have at least 10 years
4) You can consider investing in diversified equity scheme or index scheme
5) Make sure you are picking up a consistently performing scheme
6) Transfer money to safer avenues three years before the actual event.