I have been saving for my son's higher education for the past 15 years through the public provident fund (PPF), which will mature in two months. I have managed to save Rs 12 lakh. However, I understand the corpus will not suffice, since my son wants to study abroad. I have another seven years to arrange for the requisite amount (currently around Rs 25 lakh). Should I withdraw the PPF amount and deploy it in other instruments? How should I invest the Rs 50,000 that I have been putting in PPF for the past few years towards the goal?
The real concern about higher education is its ever-increasing cost. Therefore, it is difficult to predict the exact equivalent of Rs 25 lakh after seven years. However, even at around 10 per cent growth, the figure would be no less than Rs 50 lakh.
Your deposit in the PPF account, on the contrary, is growing at eight per cent a year. Obviously, your investment's growth rate (eight per cent) is not keeping pace with its target growth rate (10 per cent). This is inviting trouble. Additionally, you have to cover a huge deficit.
The plan here is to re-align your investment with an asset allocation of around 50 per cent in large-cap equity mutual fund and the rest in bond market fund. For the time being, you may invest the bond market part in short-term funds only. This allocation will help to achieve the desired balance and may offer a better return over the next seven years.
The second approach is to increase your yearly contribution by 20 per cent. What I mean is, if you are planning to save Rs 50,000 this year, you need to increase it by at least 20 per cent every year for the next seven years. Therefore, the next year, the proposed investment should be Rs 60,000. The incremental amount will also be invested in the same proportion as suggested.
This two-pronged strategy may bring you closer to your target amount. Of course, it will also require a lot of monitoring and fine-tuning. The suggestion is given purely keeping in mind that you are taking good care of the rest of your future needs.
The writer is director, Gliese Consulting. The views expressed are his own. Send your queries to yourmoney@bsmail.in