The cost of education is increasing every year. Therefore, it is important to estimate the amount required keeping in mind what will be the rate of inflation and how much time is available to you to plan for the future expenses for your child’s education.
The Covid-19 pandemic has changed our lives. In India, this deadly virus has badly affected not only the economy. Due to this, the means of livelihood of many people have also been snatched away. This is the reason why there has been a significant change in the aspirations of the people. In such a situation, people have become more conscious about the education of children.
BankBazaar.com CEO Adil Shetty says that a high priority financial goal like children’s education requires good financial planning. This is so that you are well prepared to handle rising expenses. It is not too difficult to meet the expenses of your child’s education up to Higher Secondary (Matriculation or +2).
But a real and sudden increase in the cost of education is seen when children go to a big city in India or abroad for higher education. One way to meet these costs is to start investing systematically in the early stages of your career or parenting. Adil Shetty tells us how to prepare financially for children’s education.
How much amount will be needed for higher education of the child?
The cost of education is increasing every year. Therefore, it is important to estimate the amount required keeping in mind what the inflation rate will be and the amount of time available to you to plan for future expenses for your child’s education. The cost of education will generally depend on the course your child chooses.
For example, the total fee for doing a two year MBA course from a reputed institute would be around Rs 25 lakhs. If the inflation rate is assumed to be 10% for the next 20 years, then the cost of the same course will be around Rs 1.68 crore. Similarly, at present the total education fee for pursuing an engineering course from IITs works out to around Rs 10 lakh, which will be Rs 67 lakh over the next two decades at an inflation rate of 10%. The actual rate of education may be higher.
This gives an overall idea of the cost you will need to plan for your general education courses when your child is 18-20 years old. This cost can increase manifold if your child wants to study abroad. Now, you can estimate the amount required for their higher education by looking at the number of your children and the course they can choose. To understand this easily, suppose you need around Rs 50 lakh for your child’s higher education.
How to collect money for children’s education?
It was learned that about Rs 50 lakh would be required for the higher education of the child. In such a situation, the first question that arises is how to raise Rs 50 lakh. The simple answer is that for this you have to invest regularly.
Start accumulating some amount every month from now onwards, then you will accumulate this amount by the time the child reaches the age of higher education.
How to choose the right instrument to invest?
Monthly investment required to achieve the target of education cost may vary. You can consider investing in equity-oriented instruments as these offer good returns in the long run. If you want to take less risk, you can opt for a mixed investment by allocating a higher amount in equity instruments and less in debt instruments. However, if you want to prefer only debt instruments to achieve the above financial goal, then your monthly investment amount will be much higher.
How much amount will be required to be invested every month?
If you choose an equity-oriented instrument, you will need to invest a minimum of Rs 5,500 per month for 20 years, expecting a fixed return of 12 per cent. In the second option, you may have to invest a small amount of Rs 7,000 per month to reach your goal. If you choose only debt instruments as the last option, you will have to invest a little more than Rs 12,000 per month to achieve your goal.
What are 5 investment options for children’s education?
It is wise to start saving for your child’s education as early as possible so that you have an estimated amount ready for the future. Here are five investment options for you to consider.
SIP in Equity Mutual Fund: SIP in Diversified Equity Mutual Fund is the most suitable way to meet the education cost related goals. With a monthly SIP of Rs 5,500 for 20 years at an average return of 12 per cent per annum in an equity mutual fund, you will comfortably earn around Rs 54 lakh.
Direct Investment in Stock Market: If you understand the stock market then regular investment made in shares for a long period of 20 years will not disappoint you. It is advisable to take the help of market experts who can guide you in a timely manner as to which stocks you should choose and which ones you should eliminate in order to reach your target.
SIP in Debt Mutual Funds: If you are a conservative investor and do not want to take risk in equity-oriented investments, then investing in debt mutual funds would be a good idea. These debts generally provide better returns than the prevalent mode of investment. Since debt mutual funds generally do not offer high returns like their equity counterparts, you need to increase your monthly investment amount (usually twice the amount you invest in equity SIPs).
SIPs in Hybrid Mutual Funds: They are parent- Fathers who can take a moderate level of risk should find a middle ground where they can benefit from the steady returns of debt instruments along with the growth of the equity market. Growth-oriented hybrid mutual funds can be considered by investors who have at least 65 per cent exposure to equities. Apart from this, you can also look at Balanced Advantage Fund which keeps changing exposure to equity as well as debt dynamically depending on the market conditions. Generally, balanced advantage funds provide better returns in the long run, and can be the preferred option for such investors.
The right mix of debt instruments: Investing in traditional debt instruments like Bank’s Recurring Deposits (RDs), Fixed Deposits (FDs), Public Provident Funds (PPFs) and Postal Deposits in a systematic manner can also help you reach your goals. Is. If your daughter’s age is less than 10 years then you can invest in Sukanya Samriddhi Yojana. Note that you have to invest almost more than double the amount as compared to equity. If you are very cautious about the risks, then you can consider this investment option.
What other precautions should be taken?
While creating funds for your child’s higher education, review your investments regularly to track progress. To get the desired result, you can modify it according to your current income and the rate of return on your investment.