Financing your child’s overseas education through ESOPs

ESOPs are a priceless tool for attracting and retaining talent at start-ups and MNCs. Many of us working here get ESOPs in overseas companies. Since the Indian Rupee has depreciated against other currencies like the dollar over the years, overseas investments may be a good option to help reduce currency risk. And with strategic planning, parents can secure their child’s overseas educational dreams through ESOP benefits. The lumpsum that ESOPs provide, could be suitable to fund the large investments required.

If your company’s ESOPs are overseas, it would help to reduce the currency risk. A lumpsum gain from your domestic ESOPs could also help fund education.

Multiple factors must be considered while signing up for ESOPs. They may not be good for the risk-averse as they are linked to the volatile stock markets. They may also not suit someone looking for liquidity in the near term. Sure, stocks can be volatile. This is why it is important to time the sale of ESOPs.

The decision to sell the shares acquired under ESOP is like any other investment decision. You need to take into account the capital gains implication as well as the need for liquidity for arriving at the decision. Moreover, whether and when to sell will also depend on the prospects of the company and how the stock is performing.

So, before you decide to liquidate the amount, take note of your three options:

When stocks are performing well.

Sell when the stock is performing well. If your child’s education is a few years away and the stock price of your company is already faring well, it is best you exit the plan and park it in debt options.

When you expect a better performance in the future.

Alternatively, you may also choose a staggered exit at a few higher prices. But take note of your risk appetite if you decide to do so. Since stocks can be volatile, don’t keep these investments for the last minute.

When stocks are performing poorly.

If the company’s stocks have seen better days, you might as well take a loan to finance your child’s education. When your ESOPs begin to look up, you may exit and square off the loan.

ESOPs can be very successful when implemented in the right situation. They can be a good way to fund your child’s education. They allow their owners to create sustainable and transferable value and a well-prepared and successful exit. However, keep in mind that they can also be volatile. Take heed that you exit it in advance when the stock price is doing well and move it to non-market-linked options. That way you guarantee yourself good returns at an optimal time.