Don’t choose equity for short-term goals1 min read . Updated: 13 Apr 2020, 11:42 PM IST
- The goal being short-term, the asset class needs to be changed from hybrid to debt, as the investment period of two years is not ideal for considering equity exposure
- As your income increases, you can consider additional savings to create a retirement fund for yourself
I have two daughters. One is 21 years old and the other is 11. I want to start investing for their education. My younger daughter will need ₹40 lakh for her undergraduate studies abroad in seven years. My elder daughter is aiming to get her master’s degree when she is around 25, for which I will need another ₹40 lakh. My annual salary is ₹30 lakh and I can save ₹60,000-70,000 every month. Please suggest where to invest to reach these goals.
The current priority is to save for your elder daughter as you will be needing funds in the next four years or so. The good part is that the requirement will spread across a period of a over a year or two. But this goal alone will consume most of your savings of ₹70,000 per month for the next five years. This corpus cannot be invested only in the equity asset class and a combination of debt and hybrid funds is the recommended option.
An asset allocation of the two together will generate an average return of 9%. This will accumulate a corpus of ₹53 lakh. The surplus can be continued to be held for the benefit of your younger daughter. And you will also have another two years of savings. This will lead to a corpus of around ₹17 lakh (assuming the same savings rate). However, the goal being short-term, the asset class needs to be changed from hybrid to debt, as the investment period of two years is not ideal for considering equity exposure. The target return then becomes 8% and the earlier surplus corpus along with this fresh accumulation should help you accumulate ₹32 lakh. You can consider increasing your savings on a regular basis to achieve the targeted corpus.
You also need to ensure that you start saving for your own retirement. The monthly savings you have mentioned is taken as a fixed amount per annum. As your income increases, you can consider additional savings to create a retirement fund for yourself.
Surya Bhatia is managing partner of Asset Managers. Queries and views at firstname.lastname@example.org