How to accumulate ₹1 crore for higher education in 7 years

My daughter is currently studying in class V. I wish to create a corpus of ₹1 crore in seven years for her higher studies, mainly through hybrid MFs or debt-based instruments. How do I achieve this target?

—Sonika U

The monthly amount of SIP (systematic investment plan) that you would need to deploy for this would be around ₹83,000. The assumed rate of return in this case would be 10% annualized (The assumption of a slightly lower rate here is because your intent is to achieve your financial goal with lower risk funds).

A good combination of hybrid and debt funds would include funds such as ICICI Prudential Balanced Advantage Fund (BAF), Edelweiss BAF (both hybrid funds) and corporate bond funds from HDFC or IDFC. Please invest more in hybrid funds (80%) than in pure debt funds since the return prospects would be higher in the former.

I am 60 years old and have just received retirement benefits of ₹93 lakh. Which are the best and safest MFs to make lump sum investments in?

—A Mukherjee

Many advisors recommend a ‘bucket-based’ approach for a post-retirement life. So, when a person has more money than they need for the next three-five years, they can invest the excess money in riskier assets to gain from market growth. For example, in your situation, if your annual monetary requirement is ₹12 lakh, then you can set aside ₹40-50 lakh in low-risk instruments like liquid funds or money market funds and invest the rest in moderate risk funds such as balanced funds or a combination of large-cap and higher-yield debt funds.

The idea here is that over the five years, the volatility of the equity markets would have evened out and the investor will benefit from market returns. After five years, you can repeat this experiment for the next five years and so on. Of course, one would need to take into account your other sources of funds/income (like pension) while doing this. For this reason, it would be better if you sit with a fee-only financial planner and devise an investment schedule and allocation plan to suit your needs.

Srikanth Meenakshi is co-founder, PrimeInvestor.