My brother has a 3yo daughter and they are planning to invest for her to make sure that their education needs are met when the time comes?
Ideally he wants to make sure that I can withdraw from these investments for her college and wedding in future. Does anyone have any thoughts?
PPF & SSA comes to mind.
Nifty 50 etf or fund
Recurring deposits in equal proportion
Post office has an excellent long term scheme for girls. “sukanya samriddhi yojana”
He can parallelly start a SIP into NIFTY 50 index mutual fund to meet education needs (esp if international). Make sure it is a step up SIP of 5-10%, which means SIP amount will increase every year, because education fees are increasing by more than 10% every year
First, I would suggest that you calculate the amount that will be required for the child’s education & marriage. You can calculate it using the future value formula and making suitable assumptions for the inflation and increase in the fees every year.
Suppose you decide that in current scenario, ₹ 20 lakhs for education and ₹ 25 lakhs for marriage is a good amount. Then, 15 years later, using the future value calculator, you will see that you need ₹ 55 lakhs for education (7% avg education inflation) and ₹ 60 lakhs for marriage (6% avg inflation). Total ₹ 1.15 Cr will be required.
Once you know the required amount, you can go ahead with selecting a mutual fund. Since you are looking to invest for long term (15 yrs until the child is 18 yrs old), balanced advantage hybrid funds could be a good choice. Take for example HDFC Balanced Advantage Fund. Its CAGR since inception is around 16.31% & the fund inception date is Feb 01, 1994. The fund has given a good CAGR returns over a very long period of time. Its asset under management (AUM) is also good (around ₹ 80,000 Cr).
Using the required amount & CAGR returns, we can now calculate the SIP amount. Using sip calculator, we can see that a monthly investment of ₹ 15,000 at 16.31% CAGR for 15 years will accumulate ₹ 1,15,87,920.
This is an example of how you would approach the investing in a systematic way. If you can invest more than 15k, then you can also opt for less riskier mutual fund like conservative hybrid funds. You can also increase the SIP amount every year in proportion to the increase in your income.
You can also look into obtaining a PAN on child’s name and invest using their Dmat account to make it more tax efficient. Any taxes levied on withdrawal after 15 yrs will be the child’s income & not yours. Any withdrawals, while you are a guardian, will be added to your income.
If you need any more assistance, you can reply to this post.
Hope it helps.