Should I invest in ULIPs, bonds or mutual funds for my two-year-old son’s education?


I am looking for a wealth creation plan for my two-year-old boy’s higher education. I want to invest from Rs 50,000 to Rs 1 lakh per month to create a target corpus of Rs 2 crore in 15 years. Should I invest in ULIPs, bonds, or mutual funds?
–Swati Bagaria

Assuming an annual return of 12 per cent, you need to invest around Rs 40,000 per month to create a corpus of around Rs 2 core in 15 years. If you can invest more, do it. So that you can achieve your target much earlier and transfer the corpus to a safer avenue like bank deposit or liquid mutual funds to protect the money from the likely volatility in the stock market.

Equity mutual funds are considered ideal to achieve your long-term financial goals. Equity has the potential to offer inflation-beating returns over a long period, which is crucial to create a large corpus. However, you should be prepared to take some amount of risk to invest in equity mutual fund schemes.

You should choose an equity mutual fund category based on your risk profile. For example, if you are conservative equity mutual fund investor, you should invest in large cap mutual funds. Moderate investors can consider investing in multi cap mutual funds, and aggressive investor may opt for mid cap or small cap schemes.

Do not mix your investment and insurance needs. For life insurance needs, always opt for a pure term plan. You can buy a large life insurance cover by paying a small premium. For investment needs, stick to mutual funds.

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Make it a point to stay away from insurance plans with investment element in them. This applies to ULIPs as well as traditional insurance products like endowment plan, money back plan, etc. They do not offer large life cover and they also fail as investment product on many counts. For example, you can easily shift from a badly-performing equity mutual funds to another better performer, but you can’t do the same with an insurance product. Traditional insurance products offer modest returns, ULIPs may offer you better returns than them, but it comes at a cost.





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