Hdfc mf outlook money plan your childs education

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  • Plan your childs education

    december 2013

  • contentsGet a fix on your target ..........3

    Be an early bird .....................5

    Investing approach ................9

    Building MF portfolio ........... 17

    Reviewing the portfolio ....... 22

    The last mile ....................... 24

    AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND

    Plan your childseducation

    1

    Copyright Outlook Publishing (India) Private Limited, New Delhi.All Rights Reserved.

    No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or means electronic, mechanical, photocopying, recording or otherwise, without prior permission of

    Outlook Publishing (India) Private Limited.Printed and published by Indranil Roy on behalf on Outlook Publishing (India) Pvt. Ltd. Editor: Udayan

    Ray. Published from Outlook Money, AB 5, 3rd floor, Safdarjung Enclave, New Delhi- 29.

    This booklet has been developed by Outlook Money for the readers of Outlook.

    The information provided herein is solely for creating awareness and educating investors/potential investors about rules of investment and for their general understanding. Readers are advised not to act purely on the basis of information provided herein but also to seek professional advice from

    experts before taking any investment decisions. Outlook Money does not accept responsibility for any investment decision taken by readers on the basis of information provided herein. The objective is to

    keep readers better informed and help them decide for themselves.

    DECEMBER 2013Project Coordinator: Sunil Dhawan

    Copy Desk: Sutirtha SanyalDesign: Anil Panwar

    Graphics: Varun VashishthaPhotos: Bhupinder Singh

  • AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 32

    With career options becoming fiercely competitive, education from premier institutions has become the key to a rewarding career. The best of education however, comes at a price. Every parent wants the best for his or her childs future and many parents end up digging into their retirement kitty or take a loan to meet the education expenses of their children. However, a proactive approach

    Get a fix on your tarGetThe first step of planning for your childs investment is to get a fix on your target amount and then work backwards to ascertain how much money you need to put aside every month. Since the funds would be

    to fund a childs education will help one fulfil his dream of seeing his child become a successful engineer, doctor, or an MBA graduate. Read on how mutual funds (MFs) can help you give your child the best of education that you want to give him.

    Education From prEmiEr instituti-ons has bEcomE thE kEy to a rEwarding carEEr. thE bEst oF Education, howEvEr, comEs at a pricE

    Plan your childseducation

  • AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 54

    required in the coming years, it is essential to factor in inflation. Otherwise, it would be a major hurdle in meeting your financial goals. For instance, at an inflation of 7 per cent per year, an engineering course that costs `8 lakh now will cost around `30 lakh after 20 years. Assuming equity investments would grow at 12 per cent compounded annualised, you need to put aside around

    `3,000 per month to reach that goal. Similarly, a two-year, full-time MBA course at the Indian Institute of Management that costs around `10 lakh now would cost around `38 lakh after 20 years. Therefore, at

    an assumed growth rate of 12 per cent, you will need to put aside `4,000 per month to reach that amount. With soaring education costs and high inflation, one could consider going in for equity-oriented funds, as equity is the only asset class that beats inflation in the long term. Risk and reward always go hand-in-hand. If one does not take the required risks, chances of getting a reward reduces drastically.

    the sooner you start, the better it isThe ideal time to start planning is when your child is born. School fees may not be a big burden, but it

    bE an Early bird

    Plan your childseducation

  • secure childs future

    AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 76

    is for your childs college and higher studies that you would probably need to save in advance. Moreover, the sooner you start, the better it is. This will have a big impact on the overall corpus you create for your childs education. Many parents make investments for their children out of sheer emotion. However, there has to be some planning that will help you give your child not only a better life, but also the freedom to choose his or her career and build it in a better way.

    how much will you nEEd to accumulatE to Fund your childs proFEssional FEEs in FuturE

    The funds that would be required in the coming years will be much higher than the current value.

    Courses engineering MediCal MBa

    Current fees* `8,00,000 `15,00,000 `10,00,000

    expeCted Fees aFter5 years 1,122,041 2,103,827 1,402,5517 years 1,284,625 2,408,672 1,605,781

    10 years 1,573,721 2,950,727 1,967,15112 years 1,801,753 3,378,287 2,252,191

    15 years 2,207,225 4,138,547 2,759,031

    20 years 3,095,747 5,804,526 3,869,684

    * The average fees at reputed colleges in that particular stream

    Education costs inflated at 7 per cent per annum

    3,869,684

    Get a fix on your future tarGet amount

    Plan your childseducation

  • small stePs for a biG dreamsmall invEstmEnt amounts can do wondErs in thE long-tErm

    AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 98

    The above table shows how an investment of `5,000 per month would grow in two different growth rate scenarios that fetch 12 per cent and 8 per cent returns, respectively.The above illustration is based on assumed rates of return only to explain the concept of Power of Compounding. It does not depict, forecast or guarantee the returns given by any instrument or asset class.

    Tenure 12 per cent 8 per cent

    5 years `4,01,706 `3,64,723

    7 years `6,37,953 `5,54,725

    10 years `11,09,650 `9,00,621

    12 years `15,25,998 `11,79,797

    15 years `23,57,289 `16,88,031

    20 years `45,56,055 `28,44,995

    5 years

    7 years

    10 years

    12 years

    15 years

    20 years

    10,00,000

    20,00,000

    30,00,000

    40,00,000

    `

    50,00,000

    0

    invEsting approach

    the mutual funds routePlanning a childs future by way of mutual funds (MFs) is ideal for those who do not have much time or expertise to actively build a portfolio for this specific need. MFs offer disciplined approach to achieve financial goals with ease. Mutual funds are professionally managed and offer diversification, which an investor does not get when he or she invests in individual stocks or any other

    financial instrument. Most individual investors do not have the skills and time to monitor every single investment in the manner a professional fund manager does it

    Plan your childseducation

    POWER OF COMPOUNDING

  • siP advantaGe

    every day. Fund managers are highly trained and stick to disciplined ways of investing. That is the reason investing through MFs is a good form of investing. In addition, the corpus you are building is for your childs future. So, you would prefer to hand it over to a professional, who with his years of research, experience and expertise, would help you meet your financial goals.

    There are several ways to create wealth through MFs. You may keep investing a lump sum amount in the chosen fund as and when available. Alternatively, you may take the systematic investment plan (SIP) route. SIPs involve investing a fixed amount of money at regular intervals rather than investing a larger lump sum amount. Decide how much you want to invest on a regular basis. It is important to choose an amount that you will be comfortable investing regularly over the long term. This will ensure that you do not feel the burden of investing at all, as you invest smaller portions regularly

    rather than a large chunk. An SIP averages out the cost over the long term, thereby reducing the risk in the long term. It works on the principle of rupee cost averaging. The essence of SIPs is that when the stockmarket falls, investors automatically acquire more units. Likewise, they acquire fewer units when the stockmarket rises. This means that you buy less

    when the prices are high and more when the prices are low. Hence, the average cost per unit falls over a period of time. For salaried employees, it makes sense to keep investing a fixed sum of money each month towards funds, ideally through direct debit (automatic debit of savings account).

    AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 1110

    Plan your childseducation

  • AN INVESTOR EDUCATION AND AWARENESS INITIATIVE FROM HDFC MUTUAL FUND 1312

    Which of these are examples of investment products?a) Shares and mutual funds

    b) Bonds and goldc) Bank depositsd) All of the above

    Your father deposits `10,000 in bank and gets `20,000 after 3 years. From

    where does bank arrange this extra amount?a) Bank lends to other people and earns interest from themb) Bank incurs a lossc) Bank uses other investors money to give it to your fatherd) Banks borrow from other banks to give it to your father

    Amit, a class IX student receives cash gifts from relatives. What according to

    you should he ideally do?a) Give it to his parentsb) Buy gadgets c) Save it in a bankd) Make a budget to develop good buying and spending habits

    Rahul wants a tablet. What should h