A reader asks, “I am 32 years old, an IT employee, and recently we had a new baby boy. I wanted to thank you first for your continuous financial lessons, which have changed my thoughts on personal finance. I have one crore term insurance and 10 lakh medical insurance and below MF investments.”
“PPFAS Tax Saver Fund, Mirae Asset Tax Saver Fund, and Axis Growth Opportunities Fund. Since we had a newborn baby(2 weeks ago), we are planning to start investments for his future education and other expectations starting from his 12th standard. I wish to adopt a conservative approach to accumulate this corpus in the next 15 yrs(approximately)”.
“Kindly review and let me know what you think about my existing MF plans(aim to cream one crore corpus in the next 15 years with monthly 20K SIP in all three funds) and guide me on choosing MF schemes for my son in conservative mode. Based on your previous article, gone through PPFAS conservative fund. Does it make sense to go with that fund based on my risk profile?”
From your question, I assume the existing funds are for another goal, and you wish to start investing for your son’s future. As regards your existing funds, there is nothing wrong with them. Just do not add more ELSS funds! Also, do not invest in ELSS funds if you do not them for 80C savings when your income increases.
Now, as regards your son’s future goal, why would you want to be conservative about it when you have the greatest asset on your side – time? With so much time under your belt, you can afford to invest in anywhere between 40% to 60% equity, to begin with. Since you already have some experience with mutual funds, I don’t think it should be a problem.
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Also, it is a necessity. For retirement, one can manage with an inflation assumption of 6%. Future college expenses will increase by at least 10% year on year, which is probably an underestimate! Therefore a good amount of equity is essential for this goal.
We also urge you to consider index mutual funds, so you don’t have to worry about fund performance. Remember avoiding risk is often the biggest risk. The equity risk is eminently manageable systematically; not taking advantage of the time available would be a crime. You might even be left with something extra for your retirement.
We, therefore, recommend anywhere between 40-60% of a Nifty Index fund and the rest in a PPF to begin with. You can add a debt mutual fund at a later stage.
We, however, urge you to sit down and properly plan for this goal, your financial independence, and other long-term goals, either our robo advisory tool or you can work with one of the SEBI registered fee-only advisors on our list.