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How to use glide path investing in planning for your child’s education

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How to use glide path investing in planning for your child’s education
December 15, 2023

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In this policy, the investment risks in the investment portfolio is borne by the policyholder  

Do you often use Google Maps to reach locations? When you start, the map shows you the distance to your destination, as well as the shortest route and the estimated time to reach it. But as you move ahead, the time left to reach the destination keeps changing depending on traffic situations and road diversions and accordingly reroutes your path to help you reach within the estimated time. This is called a glide path. The same process is applicable to investment too, where it helps build a desired corpus within a targeted period through a financial route map.

Well, that’s what you need to accumulate a fund for your child’s education, right? Going ahead with a child plan in this manner can thus help get your fund ready for the target year, avoiding losses on the way.

So, how can you use glide path investing in planning for your child’s education? Let us start with understanding what a glide path in investing is.

What is a glide path in a financial route map?

In technical terms, a glide path is a formula that ascertains the asset allocation mix of a targeted fund. It allocates funds in such a way that the portfolio becomes more risk-averse as it moves towards the target. To build a corpus for the child’s education, a child plan invests your money in a pool of financial instruments of varying risks and returns like equities, debt funds and fixed-income assets.

Here you have a target year in mind which is the maturity date of the plan, a desired investment schedule as premiums and the scope to restructure the portfolio as and when required, depending on the market situations and fund performances. The glide path of investing keeps updating you on the fund values, and years left to reach your target and suggests fund reallocations to stay on track and reach the desired corpus on time.

Fixing the glide path

Like you have good or bad traffic on your way to the destination and reroute accordingly, the market too has ups and downs along the investment path and the portfolio needs to be restructured accordingly. This can be done through the fund switch option in your child's plan. But how and when you reallocate your money depends largely on your risk appetite. The factors that impact a risk profile and consequently the corpus building are:

Need:

How much risk you are willing to take depends on how much money is needed for your child’s education and how much time is available to build the corpus.

Willingness:

How willing are you to grow your money faster? Because the funds that fetch high returns, like the equities, will come with high risks. So, the willingness will denote the number of risky investments with high returns in your portfolio.

Ability:

When there is little time in hand to build the corpus, you of course will need a higher share of investments in funds with bigger returns. But there will be higher chances of losing your money too. Here your ability to take risks will matter.

How a glide path can help in planning your child’s education

Recall the process in a Google map. A glide path of investing will help similarly in planning your child’s education.

Deciding the goal:

Set the target first. Say your child is now a 12-year-old and you need the funds when she is 18 for her college education. The 4-year course fee, which is now Rs 15 lakh per annum, will require a fund of Rs 80 lakh five years later, considering a 5% inflation rate.

Planning the budget:

To invest in a child plan, you need a budget to save for and pay the premiums. Suppose you fix a goal of Rs 23 lakh. The next task is to pick a plan accordingly so that the monthly premiums fit your budget.

Chalking out the strategy:

The strategy will involve how, when and in which funds you invest your money. Typically, equities can fetch returns at about 15% over the long term alongside high risks while debt funds can bring a stable 8% throughout.

How ULIP can help you:

Child ULIPs can be a helpful choice with their fund switch options. As the glide path requires you to move towards safer investments as you near the goal, keep switching your funds from equities to debt funds or fixed-income assets through this option.

A glide path in investing can thus be a fruitful choice where you avoid losses as you keep growing your fund.

Related Articles:

Reference links:

https://www.capitalmind.in/2022/04/how-i-use-glide-path-investing-in-financial-planning-for-my-childs-education/

https://www.investopedia.com/terms/g/glide-path.asp  

ARN - ED/12/23/6643

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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