UNIT linked insurance plans or ULIPs and mutual funds are gaining in popularity as investment tools for your child's education. But some conventional methods can help you reach the same goal.

Public Provident Fund (PPF) is as conventional as conventional gets. It's what my granddad and, I'm sure, yours too swore by. But who listens to granddads? Today given the sophistication of investment avenues opened, people like you and me no longer view PPF as a serious option. However, even today, provident funds have one of the biggest pocket share of an average Indian.

You may wonder why? Here are some reasons:

The pros
a. It comes with a sovereign guarantee, and hence, peace of mind for a customer.
b. You can project the approximate maturity and the variation here might not be great.
c. It doesn't require any professional advice and hence you save on consultation fee of an investment advisor.
d. It makes you follow strict investment discipline.
e. PPF is a non-attachable savings instrument, hence in case of a worst-case scenario; the amount will still be available to your kid for education. There are certain exceptions in this, it is suggested that you may seek the advice of a qualified tax consultant on this point.
f. You can take a break in savings whenever you want and restart again.
g. There is very limited liquidity in early years, which helps with the goal of saving for your child's education.

Sounds good? Well, is. But the same reasons can turn against you too. For instance:

The cons
a. 15 years is a long term and in the event of interest rates going down, the target fund will get affected. Alternatively in such a scenario you will need to save more for the same amount on maturity. The possibility of this is quite high over such tenures.
b. The savings have a guarantee from the Government of India. But most people ignore country default risk. The possibility of this is very low, but it is possible. It has happened in past to countries like Russia and Argentina. In the event of such thing happening the fallout will be great.
c. The fixed rate of return on the investment makes you lose the opportunity to make higher returns on your investment, or what consultants term as 'opportunity loss'.

But if you, like millions of Indians, think that the advantages far outweigh the disadvantages then here are some fast facts about PPF to get you started:

What's your company PF worth?

Photograph: Todd Williamson/Getty Images

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e-mail: Jiten Parikh

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