Instrument Your Daughter’s Financial Goals

C ovid-19 was raging and several parts of Mumbai were locked down, but that didn’t stop Sarika Sinha from giving her daughter the best gift a parent can. Last month, the Mumbai-based finance professional opened a Sukanya Samriddhi Yojana account for her daughter Praashvi, now two. “I will put the maximum Rs 1.5 lakh in this scheme every year,” she beams. Financial planners say the Sukanya scheme is a good option for parents with daughters below 10 years. “The scheme offers assured returns, so there is a predictable compounding of the investment every year,” says Prableen Bajpai, founder and managing partner, FinFix Research and Analytics. “What’s more, the interest is fully tax free. Parents should not let go of this opportunity,” she adds.
While the Sukanya scheme is indeed a good investment, the problem is that it might not be enough to save for the education that Sinha has in mind for her daughter. The scheme has an annual investment ceiling of Rs 1.5 lakh. Also, it offers 7.6 per cent interest right now, though this could change in the future. Assuming an interest rate of 7.5 per cent per annum, Sinha’s investments would grow to about Rs 46.5 lakhs when two-year-old Praashvi is ready for college after 16 years. That’s a sizeable sum, but will fall well short of the targeted Rs 1.1 crore. Education inflation in India is very high, with costs escalating almost nine to 10 per cent every year. The Rs 25 lakh needed for college today would have risen to nearly Rs 1.1 crore by 2036. To augment Praashvi’s college kitty, Sinha and her husband have started SIPs in two equity funds and a hybrid scheme. They are putting Rs 12,500 a month into these three schemes. “We have assumed conservative compounded returns of 10 per cent over the next 16 years,” she says. The investments would grow to around Rs 60 lakh in 16 years, complementing the Rs 46.5 lakh corpus of the Sukanya scheme.
If you are also saving for your daughter’s education, use a mix of equity funds and debt instruments to reach your goal.Besides planning for Rs. 1.16 crore for Praashvi’s higher education in 16 years, the Sinhas are targeting a corpus of Rs 2.17 crore (Rs 40 lakh at today’s prices). For this very long-term goal, they plan to start SIPs in a couple of equity and hybrid funds. Assuming compounded returns of nine per cent, they need to invest Rs 20,000 per month. If that’s high, they can start with Rs 12,500 a month and increase by five per cent every year.
Early Bird Advantage
Delhi-based Atul Tater started saving for his daughter’s education when she was only a year old. He bought three life insurance policies that would mature around the time Anoushka, now 16, would be ready for college in 2022. “Fifteen years ago, it wasn’t easy putting away Rs 3 lakh a year,” he says, “but my daughter’s education was an important goal for us.”
Atul and Preeti Tater started saving for their daughter’s education when she was only a year old. They have invested in a mix of traditional life insurance policies and equity mutual funds. Since the goal is coming closer, they are gradually shifting their mutual fund corpus from equity schemes to debt and liquid funds. Tater realised that his insurance policies alone will not help. Life insurance companies use absolute returns very effectively by highlighting the huge maturity amounts of traditional endowment policies. The investor misses the impact of inflation. If we assume five per cent inflation, in 10 years, the purchasing power of Rs 10 lakh reduces to Rs 6.1 lakh. In 15 years, it is less than Rs 5 lakhs. The maturity amounts seemed huge when Tater was buying the insurance policies, but inflation has reduced their purchasing power. So, he also invested in a mix of equity and hybrid funds to boost the corpus. Though his investments earned good returns, Tater has been prudent in managing the risk. “The goal is just two years away, so I need to reduce exposure to volatile investments,” he says. In the past one or two years, he has gradually reduced the exposure to equity funds and moved to the safety of debt and liquid funds.

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