Friday, March 7, 2014

Preparing for your Kid’s Education through Mutual Funds

Every parent aims to provide quality education for his/her kids. And of course it takes a lot of effort to produce such a huge amount if you are not going to prepare for it early on. Taking into consideration the current situation in the Philippines, the tuition fee for college students are growing steadily for the past years. Please see link here and here

So in order to address the ever inflating cost of education, I will show you how you can fund your child’s college education through the help of Mutual Funds. 

For example you have a child who is turning 1 this year. You decided to make monthly investment of 2000Php (24000Php/year) in an Equity Fund that earns 12% interest per year. How much would you have after 15 years?

So for the next 15 years, parents would save and invest a total of 360,000Php. Before the child’s first year in college the fund would have accumulated a total of 1,000,000Php which accounts to almost 300% gain.

Now you ask me, “Is that possible?”

Let me show you the historical performance of a Mutual Fund Company named PhilEquity Fund Inc. Click here to know more about PhilEquity.

This shows that for the past 10 years the compounded annual growth rate of the fund is at 19.49%. So the computation above is very much possible based from the past performance.

Now here’s a tip

It’s always good to prepare ahead of time. The earlier you prepare the smaller the amount you need to save and invest every month.

Let’s say for example you have a child who is now 5 years old. You would like to have at least 1Million by the time he goes to college. Question, how much should you save and invest in order to do so? Answer, that would be 43500Php per year or 3625Php per month for the next 11 years.

If you delay further, say for example you are going to prepare for your child’s education by the time he is already 10 years old, you will need to save and invest 112,000Php every year or 9345Php per month for the next 6 years.

So you can now see the importance of starting early. The earlier the better.

Here’s another tip

For instance you would like to prepare for your child’s education early on but would only want to save for 5 years. Your target amount is the same 1Million pesos. Simple analysis would tell us that because we would only want to save for 5 years for the college fund, we should increase the amount to be saved and invested per month.

Table above shows that you need to save and invest 46,000Php per year or 3850Php per month in order to do so.

For complete list of Mutual Fund companies, please click here.

Please note:  Past performance is not indicative of future performance. Mutual Fund investing involves risks.

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