It is significant for parents to invest in best options to meet children's educational expenses and secure their future.
For parents, children are the world. They can do anything to give the best to them and when it comes to their education, saving becomes the top priority. The rapid rise in education costs is well known. As per Assocham, the cost of education has risen over 150 per cent in the last 10 years. According to Ankit Choradia, research analyst, Karvy Stock Broking, this trend is expected to continue, which makes it even more important to consider your child’s future as ‘invest on priority’.
Every parent wants his/her child to get the best possible education without any financial hurdle. For this, it becomes significant for parents to invest in best options to meet their educational expenses and secure their future.
If you are looking for some investment options for your child’s future than this article is for you. With the help of experts, Financial Express Online has identified seven top investment options for your child.
1) Sukanya Samriddhi Scheme
It is a Government of India initiative to encourage saving for girl child. It can be opened from the time of birth till your daughter attains 10 years of age. Minimum of Rs 1,000 and maximum of Rs 1.5 lakh can be invested every year. Deposits can be made for 14 years and maturity period of the account would be 21 years from the date of opening the account. The interest rate is an attractive 9.2 per cent per annum which is subject to change. Like PPF, it is a EEE product and tax exemptions can be claimed under section 80C. Partial withdrawals are also allowed after the child attains 18 years of age.
EEE stands for exempt, exempt, exempt which implies, tax exemptions upon investment, interest received and maturity.
2) Invest in Gold (Long Term)
Gold acts as a hedge against equity and during volatile times. Gold ensures your risks in the financial markets are hedged. Anil Rego, chief executive officer and founder, Right Horizons, said, “Investments in gold should be either through ETF, gold mutual funds or E Gold. It is advisable to avoid physical investments in gold in order to reduce the risk of storage and the cost associated with the physical holding. Also the prices of the paper gold is derived based on the current gold prices in the market and hence it is as similar to buying or investing in a Gold fund.”
Choradia said, “Without gold, a portfolio is never complete for an Indian consumer. It has always been the favourite investment option. Events like marriage can be called as mini festivals of gold. If gold is such an unavoidable metal, why not start saving for it right away! We believe the best way to do it is through Gold ETFs. It will help you avoid the hassle of storing physical gold but keeps giving you the appreciation in the price rise. However, make sure this investment does not exceed 10-15 per cent of your overall portfolio or only as much as you would need for the goal.”
3) Risk cover to protect future goals
You should also take proper term insurance cover for yourself to secure your child against any unforeseen event. Though these things do happen, but the probability or chances of happening such events would be low or cannot be quantified. Rego said, “It is advisable to have a risk cover in order to reduce or avoid the financial impact on the lives of your dependant in cased of happening of unforeseen events. Thus one should make sure that the future costs related to your child’s requirement are adequately covered in this insurance. Three important expenses to be noted while going for a cover 1) Education 2)Marriage 3) living expenses till they become adult.”
4) Equity Mutual Funds
This ranks right up there in terms of priority. There are two reasons for this – longer time frame (10-15 years) and the mode of investment available (SIP). According to Choradia , a monthly SIP of Rs 5,000 in equity mutual funds for 18 years can fetch you Rs 33 lakh, assuming a return of 12 per cent per annum. Even considering an inflation of 6 per annum, this amount would more than suffice. However, the key here is not the amount invested but the time given. Power of compounding has always been understated. Equity funds have a history of generating 12-15 per cent per annum returns. And SIP, of course, is considered to be one of the best ways to average your cost over the long term.
It is one of the favourite investment options of a lot of experts. The primary reason for recommending this is the impeccable EEE feature. Moreover, the tenure or maturity period of this product i.e. 15 years is so very apt in terms of investment for child’s education or marriage. Another feature of this product is the flexibility in terms of investment.
You can invest as low as Rs 500 every year and also as and when you want. However, there is an investment upper limit of Rs 1.5 lakh for this account. Account(s) can also be opened in the name of your child and it is possible to invest in oneself through one’s own account, which will double the investment limit.
6) Chose debt instruments for short term needs
Though major needs like higher education and marriage are long term based, there are many recurring needs in short to medium term like – school fees, uniform expenses, clothing and medical requirement etc. which cannot be taken care by investing in equities considering the risk and volatility in the short term. “One can choose to invest in debt avenues like – short term funds, income funds, bond funds (with lower maturity), fixed deposit in order to avoid market risk. Though returns from these short term funds may be in the range of 6 per cent to 8 per cent, however risk too is low or moderate,” said Rego.
7) Miscellaneous: One should also invest money in building your child’s skill sets. It can be art, sports, digital media or anything which reaps good benefits for your child in the future. Also teach your child the concepts of money and encourage him to save money for his own goals. This will help him realise the value of money.