How to plan for your child’s education goals
President Franklin D. Roosevelt said - We may not be able to prepare the future for our children, but we can, at least, prepare our children for the future.All those worried parents who try each day harder and harder to secure their child’s future are determined in providing the “best-in-class” education. Modern day’s education is not just about pre-primary to plus 2 and a professional degree. The education also includes summer camps, hobby classes, trips to the varied location for practical training and a lot more. With a fixed take-home salary and rising school fees [an estimate of 10-12 % each year], how do you prepare yourself?
The Investment Options Available
The market is flooded with investment options, so what can you trust? Most of the parents look for investment options that provide
- Assured Returns
- High Growth
- Safety Of Capital
- Tax-Free Income
- Financially secure your child's future
- Finance the turning points in his/her life such as higher education and marriage
With choosing the correct child plan, you could not only save a bit for him in the case of unfortunate incidents and also build a corpus for his higher studies/marriage, etc. However, child insurance plans offer an insurance cover and help the wealth to grow but levy high charges
Term combined with Mutual Funds
Getting a term insurance on your name could protect child’s future. Just for e.g. if you have estimated a 20 lakh corpus for your child’s education/marriage, get an additional term insurance of 20 lakhs. It would help your child in case of sudden death of a parent, and you could use your savings to be invested in Mutual Funds to be used later for education/marriage. Mutual funds offer high growth but carry a risk and don't offer any insurance cover, hence taking a term insurance can mitigate the riskGold ETF’sAs quoted in financial express - Gold acts as a hedge against equity and during volatile times. Gold ensures your risks in the financial markets are hedged.. It is advisable to avoid physical investments in gold to reduce the risk of storage and the cost associated with the physical holding. Gold Monetisation scheme, or gold bonds could be the answer.
As a parent, you also need to invest some amount in traditional instruments to get assured returns like PPF, FD’s for long term. Choose Debt funds [for shorter duration] to cover the expenses of school uniform, hobby class or any other miscellaneous activities that emerge abruptly. The below illustration may help you to compare returns in traditional child plans vs. Mutual Funds
Stocks and ETF’s
Stocks and equity funds work best for long-term goals. However, if you are saving for your son's marriage in 2013, steer clear of volatile stocks and put the money in a debt fund, or even a fixed deposit.
Sukanya Samriddhi Scheme
If you have a girl child, SSS is a safe and best investment option. Like PPF, it is an EEE product, and tax exemptions can be claimed under section 80C. Partial withdrawals are also allowed after the child attains 18 years of age. However full withdrawal is only allowed when the child attains 21 years of age.
Child Plan - Know the Pros and Cons
Signing in for a child plan is quite easy, but before executing it, know the pros and cons of the products –Pros
- Builds a corpus needed by your child to attain a higher degree.
- Partial withdrawals are allowed by few of child education plans before matuirty
- Could also help in providing extended support to fill in school fees
- High charges/premiums to avail riders and services
- Not suited for kids in their teens, as benefits are best when invested for a longer term.
- No point insuring the child. A point to check when you plan to buy a child policy.
Planning for your Child's Education - Things to keep in mind
- Set a target date when you need the corpus when the kid turns 18 or later.
- Set the target amount needed, to play safe target the highest professional degree you may want him to acquire.
- Plan your portfolio with a mix of Mutual Funds, Child Plan, Stocks and Gold. Do not rely on only one investment.
- Plan your monthly contribution to meet those investments.
- Keep reviewing your portfolio on a regular basis.
- Get disciplined in your investments, as a long term investment will provide the highest compounding returns.
We hope we have answered your queries on how easily you can plan for your child’s education. If you still have any unanswered questions or need help, feel free to contact us here.We would be glad to help you with your planning and investment related decisions.Samiksha SethContent Strategist - Dilzer Consultants Pvt Ltd.