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Saving for my daughter’s education

Author: Col. Sanjeev Govila(Retd)/Monday, August 13, 2018/Categories: Ask the Finapolis

Saving for my daughter’s education

I work in an MNC in Bangalore at an annual package of Rs 30 lakh per annum. For last 5 years, I am buying gold jewellery for my daughter’s marriage. Recently, I came across an article which advised against buying gold jewellery and recommended to buy gold bars instead which can be used in making jewellery in the future. Kindly advise what should I do in this regard.

Rahul Gowda, Bangalore

I do not know the age of your daughter but assume that you still have a few years to go for her marriage. I also assume that the jewellery is being bought for the sole purpose of her jewellery requirements for the marriage and not for the purpose of saving for the marriage expenses so that the jewellery can be sold, converted to cash and other expenses met.

I advise you neither to go in for the jewellery nor the gold bars. When you take jewellery, you are locking yourself into the current designs which may be outdated when the actual time you’re your daughter’s marriage comes. If you try to sell jewellery or exchange it for newer pieces of jewellery, you are likely to suffer a heavy loss due to the making charges already paid, likely purity issues, loss of money on the stones which are sold at the weight of gold when you’re buying the jewellery but discarded when selling it, etc. In case of gold bars, you invariably pay the hallmark charges which are of no use when you convert it to jewellery. In both the cases, there are safety, purity and weight issues.

I would rather recommend you to go for Gold ETFs (Exchange Traded Funds) or Gold Mutual Funds. ETFs are bought online while Gold MFs can be bought offline as also online. You can buy as less as a rough equivalent of one gram at a time or any more quantity that you want and any of their quantity (even as low as one gram equivalent of units) can be sold anytime at that moment’s price point. The value of your holdings will move as per the price of gold while you’re continuing with the gold units. There is no problem of purity, weight cheating, making or hallmark charges or storage security issue as the holding is in the paper-less form. When you need the jewellery, you can simply sell them at the day’s gold price, money will come into your bank account within three working days, go to the market and buy the latest jewellery.

I want to save Rs 30 lakh for my daughter’s education in the next 15 years. I am a salaried employee with an annual income of Rs 9 lakh per month. After taking into account all my expenses and savings, I can spare Rs 10,000 per month for creating this corpus. Please suggest which financial instruments I should opt for.

Aziz Ansari, Hyderabad

While there are many options available to you, I would recommend two which are best suited for this purpose and you can take a pick or a combination of the two primarily based on your comfort level with risk and volatility.

The first and the safe one is the Sukanya Samriddhi Yojana (SSY). It is a scheme specifically designed for a girl child. Its account can be opened anytime by the guardian between the birth of a girl child and the time she attains 10 years of age, in a post office or a scheduled commercial bank. Only one account is allowed per child. A minimum of Rs 1,000 must be deposited in the account initially. Thereafter, any amount in multiples of Rs 100 can be deposited. A minimum of Rs 1,000 and a maximum of Rs 1,50,000 is the limit in each financial year. The current interest rate is 8.1 per cent. There is a tax exemption available on deposits under Section 80C while the interest and the withdrawal from the fund after maturity are tax exempt. The tenure of the scheme is 21 years but withdrawal is allowed for higher education purpose if the girl child has either attained 18 years or completed 10th standard for meeting actual fee or other charges required at the time of admission. Deposits in the account can be made till the completion of 15 years, from the date of the opening of the account. After this period the account will earn only applicable rate of interest. If the girl is over 18 and married, normal closure is allowed.

The second is Mutual Funds (MFs). If you are ready to accept short term volatility in your returns, there is likely to be nothing as remunerative as a carefully selected mutual fund. If you have never ventured into MFs earlier, taking a hybrid aggressive child focussed fund would be the ideal which is offered by many MF companies. However, the same effect can also be achieved by having a regular equity-heavy MF portfolio though you will have to monitor it regularly or manage it through a good financial advisor. In fact, since your time horizon is quite long, I would prefer this over SSY.

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Col. Sanjeev Govila(Retd)
Col. Sanjeev Govila(Retd)

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