Education is an expensive affair today. With the constant rise in inflation, educational expenses have multiplied rapidly over the years. Higher education expenditure is increasing at a rate of 10-12% on an annual basis.
On top of soaring costs, there is fierce competition in the education sector. In order to offer quality education for children in today’s educational setup, it is critical for parents to start building an investment corpus right from the outset.
The pervasive globalization of education, combined with enhanced standards of living, has resulted in a constant rise in its cost. There’s been a persistent spike in the fees for schools and colleges. In a tense economic makeup like this, it is imperative that young parents strategize their investments in order to afford a good education for their children. The earlier you start planning, the lesser burden you will face in the future.
Choosing the right investments requires appropriate research and timing. Your children’s age will determine the investments that you opt for. Listed below are four ways using which you can plan to save money and make an affluent fund collection for your children’s education.
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#1 – Diversified Equity Funds
Equity funds offer one of the best investment returns over the long term. A key aspect of strategizing your investments for your child’s future should be to invest in diversified equity funds with lower risks. You can divide these funds into multiple small and mid-cap stocks to decrease their volatility. Equity funds are suitable for parents with children aged 0-10 years since it offers good long-term returns.
Aditya Birla Sunlife Equity Funds is a good option to consider under this investment type. The fund is operating at a 14% return rate per annum for now. Investment starts with a minimal amount of Rs. 1000.
#2 – Mutual Funds
While equities have the potential to produce a good amount of wealth in a long-term, they also run some risk of volatility. Mutual Funds function as a suitable substitute for equities. With extensive diversification across different stocks, mutual funds offer a reliable option to save for your children’s future. You can create a specific portfolio dedicated to this purpose.
Some points to keep in mind while investing in mutual funds are as follows:
- If your child’s higher education starts in less than 5 years, you should add debt and balanced funds to your portfolio. However, if there are more than 5 years left, then you should add equity as well as balanced funds.
- Constantly review the performance of the funds in your portfolio. If you find any funds underperforming for 3 years or more, consider terminating the investment since it is expected to reap no profitable returns.
- If you start this investment early, you will have more time to plan. Two years prior to the start of your child’s college, transfer the surplus amount of equity and balanced funds into debt funds. Debt mutual funds are better than bank deposits in terms of tax efficiency and the returns that they offer.
- You can choose your pick from asset management companies, such as Reliance Mutual Fund investment plans. This is a reliable long-term option for the parents to start provisioning money for their children.
#3 – Public Provident Fund
A tax-saving investment, the Public Provident Fund (PPF) is an ideal long-term investment to save for your children’s future. The investment limit in a PPF is Rs. 1.5 lakhs in one fiscal year. PPF offers compounded interest and guaranteed returns on the amount invested. Parents also have the option to open a PPF account in the name of the child. The lock time for this investment is 15 years with a significant amount at maturity.
#4 – Insurance Products
Another viable investment option is insurance plans. A Unit Linked Insurance Plan (ULIP) is a tax saving investment option to consider building a corpus for your children’s future. It not only provides you with a financial cover, but also offer you tax-deductible returns under Section 10D. There are many insurance companies that offer customized policies for children, meeting the child’s requirements.
Child endowment policies are a recommended option for covering children’s educational needs. Under this policy, you pay the premium for a specified period or until the plan’s maturity. The returns are provided in a lump sum on maturity, which is when your child is aged 18-25.
The process of investment requires vigilance and routine reviews for the long term. Once you have invested the money into different funds, it really is your responsibility to track the progress of each fund and make transfers from equity to debt in order to lower the risks.
In a scenario of growing inflationary pressure, you can provide your child with the best education out there, through efficient planning and suitable investments. Tax saving schemes like Sukanya Samriddhi Yojana for the girl child are also useful in this regard. Strategize your investments considering these options, and steer clear of tensions about funding your children’s future.
