Here How You Can Find Best Child Education Investment and Saving Plan
Are you worried about your child's education and its future expense? In this article, we'll discuss the approach that you should take to plan your child's educational needs, which will ease your burden of future educational expense.
You may come across various child plans such as ICICI Childcare plan or HDFC Child gift fund.
in your search for Best Child Education Investment and Saving plan. However, do you think that this is the best option to go for?
Let's go and identify Best Child Education Investment Option approach.
Why It Is Important to Plan For Child Education?The first reason for this is a CONTINUOUS INCREASE IN THE COST OF EDUCATION! The cost of education is skyrocketing in India. It is a big reason to worry about middle-class parents.
We've data which shows that fees of premier institute IIT for engineering have increased by five folds in the last 10 years.
- IIT (B.Tech) fee was 2.28 Lakh in 2008 and now it is 10 Lakh.
- Similarly, fees of IIM for PGP course has nearly doubled. A fee of PGP course in IIM Ahmedabad was 11.5 Lakh in 2008 and today it is costing 19.5 Lakh.
Forget premium institute like IIM and IIT, an average fee of Engineering course is roughly Rs 6 Lakh today, five years down the line it would be close to double meaning Rs 12 Lakh. In 10 years’ time, it’s likely to cost around Rs 20 Lakh.
As time is passing the cost of education is going to increase but not your income.
How to Find the Best Child Education Investment and Saving Plan?So how would you deal with this rising educational cost ? by taking a loan? we shall now discuss the approach with which you can deal with this situation with proper planning for your child without taking any educational loan
Plan for Higher Education programThe first step is to plan for the higher education program. Identify two-three good career options for your child. I know it is difficult to zero down to education option at this stage. Still, for the planning purpose select career option based on your wish and your child interest.
Find out your Target Year for Higher EducationThe second step is to find out target year by when you are likely to spend this money. It is very easy to find out this. If your child age is 1 year then he will enter in graduation year after 18 years. This means if you are planning for engineering target age would be 18 years. If you are planning for MBA after graduation target age would be 22 years.
Find Current Education CostNow based on education option selected by you try to find out a current cost. It is very easy to find this cost. First, decide educational institute and location where you are planning the education of your child. You have various options such as government college, self-finance collage, deemed university, REC, IIT etc. Now find out current education cost applicable to course and institute. You can get this information from the website or from the institute itself.
Find Future Education CostNext step is to find future education cost. It is very difficult to predict future education cost. There are various methods to do so.
- First is consider roughly 8-10% inflation every year and find out future education cost.
- Another method uses a simple excel formula of FV (Future Value).
If you are not familiar with excel you can use the following formula to calculate future value.
Future Value (FV)= Present Value (PV) (1+r/100)nWhere
- FV = Future value of your goal
- PV = Present value or current cost of your goal
- r = annual rate of inflation
- n = time left to reach your goals (in years)
Discover Best Investment OptionOnce you are done with above exercise, you need to find out investment option which can generate a return as per your expectation. As per my, I suggest; you should not invest in fixed deposit, term plan for child education.
As per me, a mutual fund and ULIPs are is one of the best investment options for child education planning.
You should select 2-3 good equity oriented mutual funds and start SIP. While creating SIP you should select a mix of a large-cap and mid-cap and credit risk fund for investment. Also, you should start one ULIP plan as per your choice. The ratio between the Mutual fund and ULIP should be 80:20 for optimum returns.
Select the mutual fund with good historical return matching with your expected return. We've seen some mutual funds have given an excellent return on investment if you check in numbers they are almost more than 60% on investments in small and mid-cap funds.
Keep on increasing SIP on your salary increment or on child’s birthday. If you are a high-risk investor you can try equity or Credit Risk funds also. For better returns, I suggest investing in Direct Mutual Funds.
If you are a conservative investor and don’t want to invest in a mutual fund. I would advise considering PPF as the next investment option. PPF is a 15-year scheme that helps you to generate tax –free corpus for your child education. You can partially withdraw money from PPF account after the sixth year and you can close the account after 15 years.
However, please note that the expected return of PPF is lower compared to mutual funds.
Discover Yearly or Monthly Investment AmountNow once you decide on your investment instrument now discover yearly or monthly investment amount required for reaching the target amount.
It is a difficult exercise and you need to assume expected returns from investment options where you will be investing money.
Important Points to Consider for Child Education investment planning
- Start Investment at an early stage. It is easy to achieve the target if an investment is started at an early stage. Power of compounding plays an important role when it comes to investment.
- Select best investment options with higher returns. Track your portfolio at regular interval and make appropriate changes.
- Select Tax efficient investment options. Don’t invest in fixed deposit. Also, avoid endowment plan or money back plan for this purpose. The expected return of these type of plans is nearly 6-7%.
- Make sure to create a separate portfolio for child education. Identify and tag fund or portfolio. This will help you in tracking the performance of the fund.
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