BAFs for education planning: Accumulating 5 crores for your children’s future
Planning for children’s education requires starting SIPs early to harness compounding. Balanced Advantage Funds are ideal vehicles for accumulating large corpuses while balancing equity gains and risk. Their flexibility allows aggressive equity allocation initially and systematic withdrawals later to pay for education needs.
The importance of early planning
Education costs have risen rapidly in India, with even primary education requiring lakhs of rupees today. Professional education like engineering, medicine etc. can cost upwards of Rs 50 lakhs. Planning early through systematic investments is key to accumulating the large corpus required without straining finances later.
Starting early to reap the benefits of compounding
Compounding can have a huge impact on corpus accumulation over long periods. For instance, investing just Rs 10,000 monthly in an instrument earning 12% for 18 years grows to Rs 1 crore. But starting 6 years later requires Rs 23,000 monthly to reach the same amount. Hence, parents should start SIPs for equity mutual fund investments as soon as possible once a child is born to maximize compounding.
Opting for Balanced Advantage Funds
Balanced Advantage Funds (BAFs) invest dynamically across equity and debt to balance risk and returns. Their flexibility allows the potential for higher returns than fixed income with lower risk than pure equity funds. BAFs are ideal for accumulating large education corpuses as they reduce interim volatility. Opting for Direct plans cuts costs further.
Investing aggressively in the initial years
Parents in their 30s and 40s are better positioned to invest aggressively and should allocate a higher equity portion initially. As the goal approaches, equity can be reduced to limit risk. BAFs automatically rebalance asset allocation based on market conditions. So they are perfect vehicles for changing risk profiles over a child’s education lifecycle.
Topping up during market declines
Markets will see periodic declines even over long periods. Instead of stopping SIPs during volatility, increasing investments during such times can rapidly accelerate corpus growth. Rupee cost averaging via BAF SIPs results in buying more units when markets are low. Topping up enhances this benefit. Market crashes should be seen as opportunities.
Partial withdrawals for interim expenses
Many parents start saving late and need to fund the initial years of schooling. BAFs allow convenient withdrawals to meet interim needs before the main education corpus goal. This avoids liquidating investments prematurely or taking loans. However, SIPs should continue alongside withdrawals to stay on course for the ultimate target.
Allocating any windfalls
Lumpsum money from bonuses, inheritances etc. can give a boost to education planning. Rather than spending it, allocating windfalls to existing Balanced Advantage Funds SIPs can accelerate corpus growth. Even a one-time investment surge during initial working years due to windfalls can slash required ongoing contributions significantly.
Using BAF STPs for systematic withdrawals
BAFs allow setting up Systematic Transfer Plans (STPs) to withdraw amounts regularly once education needs arise. STPs transfer units from equity to debt, avoiding liquidation during market downturns. The principal remains secured while meeting education expenses in a phased manner.
BAFs thus offer parents an efficient, low-stress pathway to accumulating education corpuses running into crores for their children without impinging on other financial priorities or cutting down on equity.