Child Plan

How to plan for your Child’s Higher Education

It is quite natural for parents to want the best for their little ones. Among all other things, a good education is something that every parent aspires their child to pursue. However, with growing times, the cost of education is also skyrocketing. And don’t let the average inflation rate fool you. The cost of higher education exceeds the average inflation rate by a large margin.

"Education is the passport to the future, for tomorrow belongs to those who prepare for it today."
     -Malcolm X

Education provides a strong foundation for a child to become self-sufficient, empowered, and achieve success. However, obtaining quality education comes with a cost

While many parents still rely on traditional saving options, such as bank fixed deposits and endowment policies, these options may not provide adequate returns to keep up with inflation. These instruments can yield returns of around 5% to 7% per annum, and the interest earned is taxable based on the investor's income tax slab, making the post-tax returns almost negligible. Thus, the constantly rising inflation is the primary reason why traditional financial instruments, like fixed deposits, will possibly not create an adequate corpus for your child's higher education.

Steps For Planning To Build Your Child’s Education Fund

Set a Target Date

The first step is no-brainer. To know how to invest for your child’s future, you need to know when you would need the money i.e., the target date or year.

The average age for higher education is around 20 or 21. You can set your target year as per your requirements. If you don’t have a kid, you can have a rough estimate of the number of years after which you would have a child and add the number of years accordingly.

Find out the current cost of Higher Education

The second step would be to find out the current cost of different areas of higher education. Your kid’s future plan will change every minute. So, you need to be aware of the current cost of different branches of higher education so that you are prepared to handle everything that comes your way.

Calculate the target amount you need for your child's higher education

Quality education in India can cost anywhere from Rs 5 lakhs to 30 lakhs, whereas studying abroad can cost a minimum of Rs 25 Lakhs. With an education inflation rate of 11% to 12% per year, it is expected to increase four to six times over the next 15-20 years, meaning that education in India could cost at least Rs 25 to 35 Lakhs and studying abroad could cost a minimum of Rs 1.25 crore.

It is important to estimate the required education corpus based on your child's potential education plans, whether it be in India or abroad and the type of course they choose.

Know the Amount to be saved now

Once you know the approximate cost of education. Determine how much time you have in hand and decide how much you need to save now or a monthly contribution required to achieve this goal on or before time.

Start investing smartly

Once you have made an account of the already existing investments which can be mapped towards your child's education, you might need to save and invest on a regular basis to fill in the gap. You need to invest this hard-earned money in suitable investment avenues depending upon your asset allocation pattern and risk appetite to counter inflation and increase the value of your portfolio.

Make sure your asset allocation is just right to accomplish your child's education goal.

Read up and research different investment options. For an investment time horizon of greater than five years, clearly park the money in equity funds, stocks, or Unit-linked insurance plans (ULIPs). All these investments are equity-oriented and can generate higher returns when you stay invested with a long-term horizon.

Maintain financial discipline

Financial discipline is the key to achieving your long-term financial objectives. Investing regularly in a disciplined manner leads to huge investments over a period and you reach your goal within the targeted time.

Financial discipline is a critical factor in meeting your long-term objectives, like a child's higher education.

Keep Reviewing Your Plan Periodically

After making the investment, or setting up the SIP, your job is not fully done; you need to review and monitor your investments from time to time to see if they are generating returns per your anticipation. If not, then you need to reallocate assets or rebalance your portfolio.