Planning For Child’s Education

Children’s education, in particular higher education, is an important financial goal. It’s no longer a secret that education has turned quite expensive in modern days. In a rising competitive market nothing can be as best as an asset as education is to stay relevant irrespective of the time. Often, parents end up taking education loans to facilitate children’s higher education. Given the impact of inflation and higher interest rates, the education costs will only move northwards. Already, for higher and specialised courses in India, one needs to shell out anywhere between Rs 10 lakhs and Rs 40 lakhs.[EasyDNNnews:PaidContentStart]
 

Certain degrees in India and studying abroad are as expensive as buying a home in the country’s metro cities, reaching as high as a crore or even more. It is worth pondering over how much the overall education cost would be when children enter their late teens one-and-a-half decades later. Inflation in education tends to reach as high as 7-10 per cent. It means that a Rs 10 lakh course today will require anywhere between Rs 28 lakhs and Rs 44 lakhs in the next 15 years. Overseas education cost may surpass Rs 3 crore. It’s a large corpus of money and possibly beyond the reach of the majority.
 

The Way Out

Though the required corpus does look huge, it’s achievable if one plans well in advance. Investing early on is the only solution to achieve this financial goal. One needs to put in strong investment planning as soon as the child is born. This ensures that as the child grows so does the investment. The earlier you start the better it is as you get 15-18 years to invest. In most of the cases, this is enough to create the required corpus. 
 

Proper Planning

Inflation is the biggest menace which can belittle your savings in the long run. So, if you want to have inflation-adjusted returns, you cannot afford to skip equities. There is enough historical track record of the ability of equities to beat inflation with a much higher margin, not matched by most asset classes, over the long term. Since children’s education is a long-term financial goal, it is advisable to opt for equity investments. In the short-term to mid-term, volatility may disappoint you but in the long term you may not have any complaints. Here, one should opt for diversified equity mutual funds for this objective.
 

Invest in Equity Mutual Fund Schemes

Equity mutual funds are open-ended and diversified schemes which invest in stocks of companies across the sectors. They aim to generate inflation and risk-adjusted returns which enables significant wealth generation over the long term. The key here is to start early with proportionate investments. Inadequate investment along with unnecessary delay may not yield the desired results. Therefore, a goal-focused approach with an investment amount in accordance with the goal is a must.
 

For instance, if the amount needed is about Rs 1 crore in the next 15 years with an expected return of 12 per cent, one needs to systematically invest nearly Rs 21,000 per month. A delay of three years will drastically require a higher monthly sum of Rs 32,400 (nearly 55 per cent more). A further five-year delay will prove disastrous as your monthly investment would rise a whopping 112 per cent to Rs 44,600. Systematic investment plan or SIP is one of the easiest ways of investment to reach your financial goal. By investing through SIP, the cost of investment gets averaged out over time. Also, it helps in mitigating the downside risk to the overall investment whenever the market turns volatile.
 

Being professionally managed by investment experts with a tax deferral for the next 15-20 years, mutual funds, as investment vehicles, add cost efficiency to your portfolio. As the income rises, investors may choose the top-up feature in SIP which automatically increases your monthly contribution every year. To conclude, the exorbitant cost of children’s education may be within reach if you plan your investments early on. Go for growth-oriented investment instruments like equity mutual funds and earmark this fund only for meeting educationrelated expenses. This goal-focused approach will ensure that you remain patient, regular and disciplined with your investments.
 

The writer is Director, Sapient Wealth Advisors & Brokers Pvt Ltd.
∎ Email : [email protected] ∎ Website : www.sapientwealth.in

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