Allocating the assets:: Business Line,

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There are several options available for allocating your assets with a view to building up a corpus for your child's education. A few are highlighted below:

Equity: Without personally managing the equity portion, you can take equity exposure through good diversified equity mutual funds. Consider this: HDFC Equity and IDFC Premier Equity Fund over a five-year period have clocked annualised return of 13 per cent and 23 per cent respectively.

With much lower equity risk HDFC Prudence — a balanced fund clocked 15 per cent for the same period. Investors can consider such funds, if they are conservative and want to restrict equity exposure. HDFC Children's Gift Investment Plan too is a good option, with a 13 per cent return over five years.

Debt: For the debt portion, with interest rates at elevated levels investors in the tax bracket of less than 30 per cent can consider opening recurring deposits with banks since many of them offer interest above 9 per cent currently.

The only concern is that currently banks offer terms only up to 10 years. While constructing a debt portfolio through RDs, investors should start investing in their children's name. Once they are 18 years of age, the tax liability will then arise on the child's income. That may lead to tax savings compared to investing in the name of the parent.

Investors in the 30 per cent tax slab can consider buying endowment products from insurance companies. However, one must have a minimum return requirement.

As a thumb rule, products declaring a bonus above Rs 43 per Rs 1000 may make the cut. The advantage of such plans is the risk cover obtained with the required returns. Under current tax laws, maturity proceeds of insurance are tax-free.

Endowment plans maturing at regular intervals are a better option than the popular money-back plans. For a male aged 30, for a sum assured of Rs 1 lakh the annual outgo will be Rs 6,750 and if the plan pays out bonus of Rs 43 per Rs 1000 of sum assured, the internal rate of return will be 7 per cent. But do note that as your age increases, correspondingly the premium will go up and it will pull down your returns. Check the respective plan's bonus history to get an idea of returns.

Under debt options, fixed deposits currently appear better than income funds as it gives assured returns to investors.

Gold: For the gold allocation, instead of buying gold coins from banks and losing part of the value at the time of redemption (they are only bought back by jewellers), it may be ideal to build gold portfolio with ETFs (Exchange Traded Funds) with funds such Goldman Sachs Gold Bees, which enjoy better liquidity on the secondary market. Such funds mirror gold prices much more closely than jewellery or coins/bars.

Finally, don't forget to insure your life through a term insurance plan while building a child's education corpus. Getting a pure term cover equal to the corpus will secure your child's future, even if any unfortunate event were to overtake you. If the plan is bought at an early age (for the bread winner), the premium will be low too.