IN COLLABORATION WITH NISHANT BATRA 

We all are very emotional about our kid’s education. We all want to send our kids to the best of schools and universities. Now, the schooling can be easily planned from the regular cash flows but for higher education, parents need to plan in advance.

What I have observed is that people do save. But they do not demark the savings for each financial goal. The common pool of savings may not be enough to tackle all the financial goals. One more mistake, which I have observed is that there is no targeted amount in mind. That’s why it is important to define the goal and demark the investments for that specific goal.

Goal based investing brings discipline and it balances the expenses for current aspirations and savings required for future financial goals.

HDFC Children’s Gift Fund is a decent vehicle to channelise the savings with a defined purpose of higher education goal of the child. Below are some of the features of this fund:

1. Long Lock-in Period:

 Investors, given the option of withdrawal, can get irrational and may resort to premature withdrawals for unnecessary expenses. This fund imposes a lock-in of at least 5 years or till the time child attains the age of majority (whichever is earlier).

This long lock-in will ensure (to an extent) that the funds are not withdrawn prematurely for any other purposes.

So, if you start the investment today for the child who is 3 years old, the lock-in will remain for next 5 years Whereas if the child is 15 years today, the lock-in will remain till the 18th birthday of the child.

Please note, children less than 18 years of age, on the date of investment by the investor are eligible as unit holders.

2. Asset Allocation:

HDFC Children’s Gift fund has a balanced approach of investing in equity and fixed income. The fund will invest 65% to 80% in equities and 20% to 35% in fixed income securities. It also has a mandate of investing up to 10% in REITs and InvITs.

As on 30th Sept’2022, this fund has approx. 67% in equities and 33% in fixed income. Within equities the portfolio is skewed towards large cap and debt portfolio is mostly in Sovereign securities or AAA rated corporate bonds.

This allocation is similar to aggressive hybrid fund (erstwhile called balanced funds) and is suitable for investors saving for the child’s education.

3. Performance:

This fund has a 20+ years of history and is managed by the Chirag Setalvad, the star fund manager of and head of equities of the third largest asset management company in India.

If we look at the five-year rolling returns for this fund, on less than 1% of the occasions, this fund has given negative returns and more than 62.7% occasions, this fund has delivered annualised returns greater than 10%.

If we look at the rolling returns for 7-year period, this fund has never given negative returns, minimum return is 5.69% annualised. The average and median returns are ~ 14.70%.

86% of the times, for seven year holding period, this fund has given returns more than 12% annualised with maximum return of 24.59% annualised.

If we look at the rolling returns for 10-year period, minimum return is 10.25% annualised. The average and median returns are ~ 14.90%.

94% of the times, for ten year holding period, this fund has given returns more than 12% annualised.

Data Source: https://www.advisorkhoj.com