How to Use Glide Path Investing to Secure Your Child's Education

Calling From	Phone Number
Calling us from INDIA	18002097272 (Toll Free)
Rest of the World	+912067871700 (Call charges apply)

What is Glide Path Investing?

Glide path investing is a systematic investment approach where the portfolio allocation evolves as you approach a financial goal. In the context of child education planning with glide path investing, this strategy involves gradually shifting from high-growth assets like equities to more stable investments like bonds or fixed-income instruments as the education goal nears.^[1]

The method aims to maximize growth during the initial years while minimizing risks closer to the target date.

Why is Glide Path Investment Important for Child Education?

Parents need a reliable plan that considers inflation, market volatility, and the specific timeline for achieving this goal. Glide path investing for child education provides a structured approach by offering: ^[1]

Aligned Risk Management:

Higher exposure to equities in the early years provides growth, while conservative investments protect capital closer to the goal.

Time-Based Adjustments:

Investments automatically adapt as the education milestone approaches.

Inflation Protection:

Equities can help counter rising education costs over the long term.

How to Implement Glide Path Investing for Child Education

1. Set Your Education Goal

Estimate how much you need for your child’s education, considering future costs and inflation. For example, if a college costs ₹15 lakh per year and inflation is 5%, you might need around ₹80 lakhs in 5 years with 5% inflation rate. This however will vary depending on your child’s age and your location, so it’s important to calculate accurately and adjust for rising education expenses over time.^[1]

2. Choose Your Investment Mix

Begin by choosing a mix of high-risk and low-risk investments. For the first few years, focus on equities (stocks) since they offer higher growth potential. A typical starting allocation could be 60% equities and 40% debt (such as bonds or fixed-income funds). As the time to your child’s education gets closer, gradually shift more money into safer, low-risk debt instruments to protect your accumulated savings.^[1]

3. Start SIPs (Systematic Investment Plans)

Set up monthly contributions to your investments, like a Systematic Investment Plan (SIP), which helps you invest regularly and build wealth over time. For example, if you need ₹80 lakhs in 5 years, you might start with ₹27,500 per month. Additionally, increase your SIP by 5% annually to keep up with inflation, making it easier to reach your goal as your income grows.^[1]

4. Monitor and Adjust

Regularly review your investment progress and make adjustments if necessary. If markets drop or there are changes in your financial situation (like a salary increase), consider increasing your SIP or adjusting the asset allocation. Glide path investing is about flexibility—your plan should adapt to life changes, while still aiming for the long-term goal of funding your child’s education. ^[1]

5. Stick to the Plan

Once you’ve set your glide path, avoid making emotional decisions based on market fluctuations. Markets can be volatile, but sticking to your plan will help you stay on course. Focus on the long-term goal of funding education, and don’t panic if the market temporarily dips. Patience is key to a successful glide path investment strategy. ^[1]

Example of Glide Path Investing for Child Education

Let’s take an example to illustrate how glide path investing works:

Scenario: Your child is 3 years old, and you want to accumulate ₹50 lakhs for their higher education by the time they turn 18.
Time Horizon: 15 years.

Stage 1: Early Stage (Years 1-10)

Allocation: 70% equities, 30% debt.
Instruments: Equity mutual funds, index funds, and balanced advantage funds.

Stage 2: Mid Stage (Years 11-14)

Allocation: 50% equities, 50% debt.
Instruments: Hybrid funds, debt funds, and conservative hybrid funds.

Stage 3: Final Stage (Year 15)

Allocation: 20% equities, 80% debt.
Instruments: Fixed deposits, short-term debt funds, and government bonds.

By following this approach, you can ensure that your portfolio evolves to match your financial goal while managing risks effectively.

Conclusion

Glide path investing for planning child education offers a structured and risk-adjusted way to achieve your financial goals. By understanding your timeline, learning how to diversify diversifying investments, and gradually adjusting your portfolio, you can ensure that the funds needed for your child’s education are available when required. ^[1]