The primary preferences when it comes to planning for children’s education are equity funds and balanced funds. IFAs prefer these funds for those clients whose children are below 15 years. For clients with children above 15, most advisors go for debt funds.
Insisting that equity is indeed the best choice when investing for the education of young children, Chennai based D. Muthukrishnan, of Wise Wealth Advisors, says that he chooses funds based on the child’s age and the tenure of investment. “If there is a gap of at least seven years between the start of investment and when the client will need the money, I go for equity,” he says.
Seconding Muthu’s view, Mumbai based Jayant Vidwans, of Vidwans Financial Advisories, says he checks if the client is planning for graduation or post-graduation to understand the duration of investment before recommending any scheme. “For example, if the client has children aged 2 and 6 years, it would be prudent to invest in equity funds for the post-graduation of the 6-year-old and starting an SIP in a child fund for the child aged 2, as the redemption period will be after 18 years,” he adds.
Another Mumbai based IFA, Ritesh Seth, of Tejas Consultancy, shares that he recommends schemes after assessing the risk appetite of the client. “I usually recommend high equity exposure for the sheer ability to deliver higher returns, but if my client is too worried about the risk involved in it, I might suggest a balanced portfolio, like child plans; 90% of the time, though, my clients see the advantage of investing in equity schemes for their children’s education,” he says.
Gajendra Kothari of Etica Wealth Management too favours equity funds, “I think investing in a scheme with adequate equity exposure with a good long-term track record is ideal for investing for long-term goals like children’s education. IFAs can consider recommending child plans also as it enables family members and relatives to contribute to the fund,” he adds.
However, some advisors have a different take. Agra based Shifali Satsangee, of Funds Vedaa, feels it is not prudent to invest in just one category of funds. “When I plan for clients with kids below 15 years, I ask them to invest in a combination of equity funds and child funds. As they approach closer to their goal, I advise them to start withdrawing from equity funds and invest in funds with less risk,” she says.
Speaking about the benefits of investing in child plans, she adds, “These funds are for the purpose of funding children’s future needs, which keep the investment focus in place. Most of the child funds have a free accidental insurance cover for the guardian, which is also an added benefit.”