How to plan for child education?
Easy Financial Planning to secure your child’s future
Bringing home your bundle of joy is the best moment of your life. Your family and relatives will tell you that kids will just grow up on their own, but they don’t! Raising a child and their education costs money and a lot of it.
As parents we want to provide the best possible education to our children especially since it could impact their future. With the cost of higher education and post graduation rising by at least 10% every year, sponsoring education for your child could cost you a fortune. Even in India the fees for engineering, MBBS, and MBAs are through the roof. The cost of classes and entrances exams for the same are quite substantial and could burn a hole in your pocket if not planned well in advance. Right now your child might be too young even for a play school. However, the sooner you start investing for this goal the more time your money will get to grow and the lesser you will need to invest. In this article we will discuss how a new investor can begin by creating a goal and investing to plan for their child’s higher education.
Stay clear of child plan policy
The Child Plan Policy is an insurance cum investment plan. In reality these plans are nothing but endowment or ULIP plans . Its purpose is to financially protect your child in case of premature death of the earning parent and to provide funds for child’s higher education. But, the problem with these plans is that the death benefit is not adequate and the return you earn on the investment part of your premium is around 6% which is very low.
If protection in case of death is your worry, then buy a term plan large enough to financially cover your dependents and your children’s education. The premium for this would be much lesser (10-20 times lesser) than what you would pay for these Child Plans. You can invest the difference in the Premiums in Mutual Funds that will easily give you 12-15% returns in the long term.
Goal based investing is far more effective than investing without one. When you invest based on your goal you know exactly how much you need to accumulate, by when and how much you need to start investing now to ensure your target is met when the time comes.
1) Find out the current cost of different educations like engineering, medical, MBA, ME, MS etc in India and abroad.
2) Calculate how many years you have until you need the money.
3) Calculate the inflated amount that you will need when you reach the target date.
Assume your child is 1 year old and you want your child to pursue engineering from IIT at the age of 18. The cost of engineering from IIT currently is about 1L per annum. With 10% inflation the cost of engineering in 17 years would be 5 Lakhs annually. So by the time your child turns 18 and is ready for college you will need an Education Fund of 20 Lakhs. Your investment time horizon is 17 years and the goal amount is 20 lakhs. Now you need to figure out the SIP amount and start investing. 20Lakhs might seems like a huge amount. A SIP of 3K invested in an equity Mutual Fund will help you achieve this goal easily in 17 years.
Invest in Equity Mutual Funds
Equity Funds can be your perfect investment partner. These type of Mutual Funds have a track record of giving high returns of 15% or more in the long term (10+ years). Higher the return your portfolio generates the lesser can be the SIP investment amount. Equity Mutual Funds are also tax exempt thus aiding the faster growth of your money.
Start early start small
Investors generally lose a lot of time just thinking what amount to start investing with. And if they conclude that the amount is not big enough then he simply wait for the time when they can invest more. This is unwise. If you need to start investing Rs5000 but can afford only Rs3000 now, then start by saving those 3K. This way you would have at least made a smart investment.
The earlier you start the lesser you will need to invest and the more money you make.
It is important to stay committed towards your child’s education fund since it directly affects their future prospects. Do not stop the SIP or use this fund for any other expense.
If you need any support creating an investment plan for your child’s education then you can reach our expert financial experts at +91 8767134134 or email our Customer Support at firstname.lastname@example.org
Start a SIP today in the Top Mutual Funds India -SBI Mutual Fund, Reliance Mutual Fund, Franklin Templeton, HDFC Mutual Fund, Kotak Select, Motilal Oswal and many more.
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