By planning properly in advance, you can easily provide for your children's educational expenses. Even though you will find several investment options dedicated to children, you should study and evaluate them carefully to understand which one suits you the best.
Bringing up a child is equally about finances as it is about emotions. Seeing your children grow up without having to see them struggle weighing down by money problems, is one of the best experiences of life. Hence, it is time to chalk out a comprehensive financial plan to secure your child’s future, in case you are not sitting on a vast cash pile to fund your little one.
According to one Assocham Social Development Foundation survey, in India, the cost of private school education in the last 10 years has risen by almost 150 per cent. With the spike in education expenses, meeting the higher education expenses for parents has become a daunting task. However, by planning properly in advance, you can easily provide for your children’s educational expenses. Experts suggest even though you will find several investment options dedicated to children, you should study and evaluate them carefully to understand which one will be the best for you.
If you want to plan smoothly for your child’s future, follow these steps to ease your worries:
1. Determine and set your goal: On behalf of your child, decide for the time being what he/she wants to become. While setting a goal, consider the time horizon. That way you will know when the money will be required. The plus point about education planning is that you know for sure when the money will be required. For instance, you can be sure that you are saving for your daughter’s LLB degree in 2035.
2. The future cost of education: With the help of several educational websites, you can calculate or tabulate the cost of different degrees, as of today, and note down the future cost of the desired degree. You should also determine if the child will be studying in India or overseas. If you are planning to send your child abroad, take into account the currency aspect as well. If you zero down to the current cost of the degree, it will be easier to determine the tentative future cost which will help you to fix a realistic target amount. Also consider the inflation, because the education inflation is rising at the rate of 10 per cent every year, which could create a dent in your savings.
3. Investment option of your choice: Experts suggest depending on their need and risk appetite, one can opt for equity, debt or a mix of products, such as a balanced fund, which is the mix of both equity and debt components.
Generally, parents have 15 years in hand to invest in their children’s education. Equity is the best asset class when it comes to long-term plans. One should ideally invest through SIPs of open-ended mutual fund schemes to gain optimum returns, suggests industry experts. It is also imperative to have a term insurance plan before investing in a mutual fund so that, under any unfortunate circumstance the child’s education is not hampered.
For risk-averse investors, having a multi-asset investment approach could be helpful to tackle high inflation. Hence, investing in a balanced mutual fund puts your money across equity and debt, while lowering the risk considerably. However, if your child is likely to need money in the next 2-3 years, you should choose a scheme that invests mostly in debt (fixed deposits, bonds, debentures, debt mutual funds).
4. How much is enough? To reach your goal, calculate how much you need to save every month. However, if you are planning to send your child abroad for studies, the cost of expenses increases and the higher the cost of education, the more you will need to save. For example, depending on market conditions, you can accumulate around Rs 42 lakh over a period of 15 years by investing Rs 10,000 every month in an equity mutual fund, at an assumed return of 10 per cent.