Personal Finance: Fund-based Education

PERSONAL FINANCE
Fund-based Education

The truth about mutual fund schemes targeted at children's education.

By Shilpa Nayak

Who would you trust with your child's investment, yourself or a mutual fund? Incredibly, the mutual fund industry trusts fund managers. Thus, it kept investments in schemes tagged 'children's education', away from the grubby hands of investors with long lock-in periods (sometimes 18 years). That ended last month when SEBI issued a directive specifying a maximum cap of three years.

The Indian investor has seen many financial instruments that stipulate lock-in periods. This is a legacy of an income tax structure replete with exemptions. It is this willingness of investors to invest in instruments with lock-in periods that mutual funds set out to tap. And the education-hook lured many.

The biggest problem with such schemes is the lock-in period. Funds say this ensures the money is safe till the child reaches the age when it is required and that it enables the fund manager to invest for the long-term.

Both arguments are specious. Parents can definitely be counted on to keep the best interests of their children in mind. And the longer lock-in suits the fund's objectives, not the investor's, for it means long-term annual management fees. And it is up to the fund to design a scheme with long-term objectives.

Then there are other glaring faults. The first is the investor's inability to exit from an investment in a children's scheme to other better alternatives. And the 15-18 year lock-in periods makes one wonder whether fund managers actually take 15 or 18 year bets on interest rates, inflation, or, simply, the direction certain stocks will take? Likely not.

There may be some good funds among the clutch of those marketing themselves on the children's education platform. Still, investors may be better off choosing from the larger basket of funds available without any tag. A crash course in Investing 101 (courtesy, this section) can help anyone invest with the long-term in mind. Do that.

SNIPPETS

Tatas On The Pension Zone

Tata AIG has received IRDA (insurance regulatory and Development Authority of India) approval to launch group pension products in the country, making it the first private player in the field. The introduction of these products will help Tata AIG offer a complete gamut of services to the insurance buyer. The company will begin with the launch of three key products under the retirement plan: Comprehensive Gratuity Scheme, Comprehensive Superannuation Scheme (Defined Benefit) and the Comprehensive Superannuation Scheme (Defined Contribution). These products will provide reliable, secure and flexible solutions suitable for employers' pension obligations. This apart, a provision has been made for the additional benefit of Life Insurance, in the event of premature death. AIG, the joint venture partner of the Tata Group, has a global pension operation that covers 30 countries, managing 30,000 retirement schemes, and assets in excess of $8 billion.

Reliance For Direct Credit

Reliance mutual fund has tied-up with ICICI bank for direct credit facility. Available for two of its schemes, Reliance Liquid Fund and Reliance Income Fund, this facility will benefit account holders of ICICI Bank. Investors with an account with ICICI Bank can place a request for direct deposit facility and get the redemption amount directly transferred to them. This will save the time and effort of the investor and help the asset management company by removing processing hassles. An amount above Rs 1 lakh would, however, attract a service standard applicable-one working day for Reliance Liquid Fund and the second working day for Reliance Income Fund. Reliance Mutual fund has already tied-up with HDFC Bank and Citibank for such a facility.

New Sun From The Birla Stable

Birla sun life asset management company ltd is launching a new open ended income scheme, Birla Bond Plus. The new scheme will have two options: dividend and growth. The minimum subscription amount for the scheme, would be Rs 500, and in multiples of Re 1 thereafter.

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