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29 September 2020 | 4 min read

Guide To Help You Plan For Your Child’s Education

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Education is your child’s window to the world. And it goes without saying that every year, education is becoming expensive but all the more important given the competitive world we live in.

And if you are a parent or expecting, the best time to start saving for child education is now! From investing in the right funds and plans that will give high returns to calculating inflation on the tenure of your investments, everything needs to be planned when you are looking at your kids’ education.

Moreover, just like every parent, you also want the best for your child and maybe even send them abroad for higher studies. All of this comes at a cost that will take a substantial amount of money thus relying on simple saving accounts is not the best approach. We tell you some of the best child investment plans so that you can start saving for the bright future of your child.

How To Go About Child Education Planning?

What might seem an astronomical amount will secure your child future plan and the best way to go about is incessant planning and restructuring. If you child is just born, you have nearly two decades to save for their future and if they are about to enter college, you can go for short-term investment vehicles. The options are endless, provided you look at the right place.

Put A Solid Plan In Place

Plan for saving

Just creating a fund and putting some amount in it will be of no use because inflation is a thing and the fees of school and university is bound to increase manifold (10-12%) by the time your kid grows up. This is why child education planning is important. The first thing to do is calculate the time and cost you have for saving. Next up, narrow down two to three courses you kid might be interested in and calculate the fees of each. Once you have a cohesive amount in mind, add at least 10% inflation to this amount and you have the target you have to reach by the time your kid grows up.

Accordingly plan and put an investment plan in action. You can calculate all of this on your own, take help from financial advisors or simply use online tools.

Demarcate Each Saving Goal And Segregate The Funds

Demarcate saving goals

Once you have chosen the saving target for your kids’ education, it is important to demarcate it and accordingly choose an investment option. For instance, there will be primary schooling, secondary schooling, tuition fees (for cracking entrance exams and such) and the cost of going to college and living expenses. For the milestone that will arrive earlier, like the primary education, you can create a fund that will give high returns in short-term and avoid the risk factor. For the long-term goal of sending your kid to college, you can choose funds that have high risk but will yield good returns in a decade or two.

Keep Increasing Your Investment

Increase your investment

Once you have started the investment, you should keep increasing the amount as and when you get a salary hike. For instance, if you are earning INR 60,000 right now and have started a fund that debits INR 6,000 (10%) of your income towards your child’s education plan, make sure you increase the investment when you get a hike next year. This will ensure that the compounded interest you earn on your child’s education fund is high when it is mature.

Diverse Portfolio For Best Returns

Diverse portfolio for best returns

Now that you know when you are supposed to start (as early as possible) and how your investment plans should be (smart, strategic and goal-oriented), it is important to know which investment vehicles will be best aligned with different stages of your child’s education planning.

For the child whose education needs will arise after ten years, the investment plan should consist mostly of equities and there are several mutual funds that provide high returns provided you are ready to take the risk involved.

The best type of Mutual Funds for your kids’ education can be SIP, ELSS (equity linked saving scheme if you want to save tax as well) and Fixed Deposits as well. The latter is best suited for 3-5 years of investment period given it has the least risk associated.

Another important type of investment is Ulips as it not only gives an investment portfolio that is diverse and bound to yield results but also provides the added protection of insurance.

Insure Yourself and Your Kid

Diverse portfolio for best returns

While child Ulips will provide the limited insurance cover , make sure you are well-insured in case of any unforeseen event. Nothing should derail your child’s education needs and insuring yourself and your child is the best way to do it.

Last but not the least, do not forget to de-risk all your investment funds when it nears your end goal and time. This is important so that you don’t end up losing the money you have earmarked for your child’s education due to last-minute market inflation.

Start early, choose the right investment options according to your kids age and your income and stay invested. Make sure you move all the compounded money to a safe and risk-free fund two to three years beforehand. All these steps along with your research and planning will ensure a safe and secure future for your child.

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