In the previous article, we discussed how to finance your child’s education post-pandemic. In this article, we will discuss why you need to look beyond traditional investment options for your child’s education.
Investment is an age-old concept. People have been investing for many years in various asset classes. Traditional investments like Fixed Deposits, government bonds, gold, silver, etc. continue to be cherished areas of investment. However, the world of finance is evolving rapidly.
People are becoming adaptable to diversity in their portfolios.
Today, personal finance is a valued concept amongst people of all age groups. The awareness about investing is increasing.
The youth especially is very enthusiastic about the diversification in the world of finances. People are switching to Modern Investment options like Debt Funds, Equity Funds, Hedge Funds, etc.
But, the concept of personal finance changes dramatically if you are a parent. As a parent, your portfolio demands a strategic redesign, to accommodate your child’s requirements.
To ensure that your child receives the best academic exposure, you need to plan your investment journey in advance. Both traditional and modern investments come with their own set of merits and demerits.
The catch is to attain an ideal mix of both, that minimizes the risk and maximizes the return.
6 reasons to go beyond the traditional investments
Wealth Generation
When you are planning for your child’s education, you can not ignore education inflation. Traditional investments like fixed deposits offer a very low rate of return.
They might keep your money safe, but they make little to no contribution to your wealth generation.
To meet your child’s education needs, you need to look beyond these investments. There is no dearth of investment opportunities in the market today.
Based on your risk appetite, you can consider investing in equity funds, debt funds, bonds, etc. These investment options will allow you to grow your money substantially. Moreover, playing long-term reaps the most out of compounding.
Just remember, making money will not help you generate wealth, managing your money will. Diversifying your portfolio helps!
Risk Mitigation
Going beyond traditional investment can help you mitigate the risk of uncertainty. You can not anticipate what will happen with the economy tomorrow.
Neither can you foresee its impact on your assets, Can you? But, you can always plan for the uncertainties and make room for damage control.
Distributing your money into various asset classes instead of one would help mitigate the risk of uncertainty.
Inflation adjustment
Inflation is a real threat to your investments, especially the traditional ones like fixed deposits.
If you are someone hoping to see your money double over the period through fixed deposits, it is time for a reality check!
Fixed deposits offer a very low rate of return somewhere between 7-8%. Whereas, the Inflation rate in India is recorded at 4-6% in recent years.
Hence, the true inflation-adjusted return that you receive by the end can go as low as 1-2%. Now, just imagine the implications when inflation goes higher than the rate of return.
This is why it is important to have investments that can beat inflation. Modern investments like debt funds, equity funds, and hedge funds are potent to beat inflation.
Diversification
If you stash all your money into one asset class, you are missing out on some wonderful opportunities. Investments come with a low-risk low-return rule. Investing only in risk-free traditional investments, unfortunately, can not suffice to fund your child’s education.
Therefore, for a higher return, you need to make room for some risk. Modern investments like Mutual Funds allow you earn good returns as per your risk appetite. Strategic diversification enables you to maximize the return of your portfolio.
Professional Portfolio Management
Equity is a risky but rewarding asset in the long run. But, if you are a beginner not yet friendly with equity stocks, Mutual funds are the best way to begin.
Here, you have a professional portfolio manager, who invests your money into stocks.
They are skilled people well-versed with the knowledge of the stock market, taking care of your risk appetite throughout. This way, you avail the benefits of equity without risking your money in the dark spots.
Liquidity
Traditional investment options like Fixed Deposits have a lock-in period. Also, the investments in these options call out a lump sum amount. So, when you put your money in an FD, you cannot withdraw your money except at a cost.
As far as your child’s education is concerned, you can not predict when and how the fund requirement arises. So, it is wiser to have some relatively liquid assets like Mutual funds in your portfolio.
Traditional Investments have been favored by Indian households for a reason. These investments offer security and assured returns
With the soaring inflation, these assets are likely to fall short and force you to rely on education loans to fund your child’s education dreams.
To ensure your savings are enough, looking beyond traditional investments and storing your wealth in different asset classes can help in the long run
FAQs
What are traditional investments in the Indian scenario?
Traditional Investments are investments that offer security and assured returns. Some examples of this are land, property, fixed deposits, recurring deposits, gold, and other precious stones.
What are some investment options to grow your wealth?
In order to grow your wealth, you should explore equity-based investments like Mutual Funds, Stocks, and ETFs. These have the potential to beat inflation and preserve the value of your money in the long run.
Why should Indians look beyond traditional investments?
While traditional investments have worked in the past and are secure investments, they don’t offer returns big enough to help you achieve goals like wealth creation or help you with financial goals like buying a house, sending your child abroad, and more.
