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How to invest to secure your child's overseas education expenses

Systematic Investment Plan of a mutual fund is considered by most financial experts as the best way

Question: My grandson is two years old and I am worried about the cost of foreign education which is increasing every year. What would be the best way to ensure that sufficient funds are available by the time he is 21 years old and ready for higher education?

ANSWER: Setting aside funds from the time a child is an infant and investing the amount in a Systematic Investment Plan of a mutual fund is considered by most financial experts as the best way to secure a child’s educational needs. Please note that the mutual fund education scheme generally has a lock-in period of five years. Several well known mutual funds have devised children schemes that permit a gradual increase of the annual amount. Children’s plans also provide the flexibility to add lumpsum investments which need not be made every year but as and when liquidity is available, for example, from gifts received on birthdays. This flexibility ensures that additional investments even if made sporadically would boost the financial corpus and take care of both inflation as well as rising educational costs.

Thus, a mutual fund scheme to which contributions are made every year, with additional funds being invested as and when they are available, should take care of the commitment to meet educational expenses of your children.

Question: Some investors on Indian stock bourses complain that they do not get enough information in respect of listed companies. Is there any justification for this view taken by certain foreign investors who invest in Indian stocks?

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ANSWER: According to guidelines of the market regulator, Securities & Exchange Board of India, price sensitive information needs to be disclosed in real time. The information which is required to be disclosed pertains to change in key managerial personnel. However, when the term of office of the top management comes to an end, or when senior employees reach the age of superannuation, there is no necessity to inform investors who are generally aware of such an event. It is also necessary to inform investors about resignation of a statutory auditor or secretarial auditor. Where a company proposes to take fund raising initiatives, disclosure of the same is mandatory. A very important requirement pertains to disclosure of any fraud or defaults committed by a listed company, or by its promoter, director, key managerial personnel, or senior management executives. This also applies to a subsidiary company irrespective of such fraud or default occurring within India or outside India. In order to strengthen the disclosure norms, Sebi is further proposing to include disclosure of restructuring and resolution plans which the company may have. Further, if any one time settlement of loans is to be made with banks or financial institutions, this will need to be disclosed. Where a creditor has filed a winding up petition with the National Company Law Tribunal, the company will need to disclose it only when such petition is admitted by the NCLT.

In short, a mere application to the Tribunal is not required to be disclosed. Therefore, there are more than adequate safeguards which are laid down by Sebi to protect the interest of shareholders and stakeholders of publicly listed companies.

Question: India’s trade deficit with China is mounting as imports of Chinese goods have risen substantially. Will this not hurt Indian entrepreneurs who are encouraged to manufacture goods in India?

ANSWER: It is true that import of Chinese goods has increased by 11 per cent from $42 billion to $46.6 billion during the April-August period. This increase is attributable to import of computers, telecom equipment and their components. Three product segments, namely, electronics, machinery and organic chemicals account for two-thirds of India’s imports from China. As a result, India’s trade deficit with China has widened to $40.8 billion as on August 31, 2024.

However, the Finance Minister recently stated that certain industries need to be encouraged and, therefore, critical imports needed by them cannot be curbed. According to her, there has to be a balance between the need for essential imports to sustain growth of certain industries and protecting the domestic entrepreneurs. In fact, during the 2024-25 budget proposals, the basic customs duty on mobile phones, chargers and mobile printed circuit board assemblies was reduced from 20 per cent to 15 per cent.

This has resulted in a threefold increase in domestic manufacture and almost a hundred fold jump in export of mobile phones over the last six years. Therefore, the Indian mobile phone industry has achieved maturity as a result of a cut in import tariff on components. This has benefited the Indian manufacturers. Both the World Bank and the IMF have advised that India’s tariffs need to be reduced to promote economic growth and industrial development.

HP Ranina is a practising lawyer, specialising in corporate and tax laws of India.

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