Planning an education corpus for your child
Good education is no mean feat, either for the child or the parent. While children struggle to score good marks to secure their admission in a prestigious institution, parents struggle to meet the increasing cost of education. About 1% of students manage to secure their place in a public funded engineering, medical or management institution. For the rest, even after scoring 90%+, they fail to get admissions to the preferred institution. The result – private institutions!
If we keep aside your child’s merit for the time being, both public and private colleges are expensive. According to the data published by the National Sample Survey Office (NSSO), between the period of 2008 and 2014, the annual expenditure on general education in private institutions increased by 175% on an average. The cost of technical and professional education, on the other hand, rose by 96%. Private schools proved to be 11 times more expensive than Government schools and private institutions charged thrice the course fee than that charged by Government institutions. The NSSO also mentioned that education inflation came to 10% to 12% annually on rough estimates.
If you consider the education inflation alone, what do you think the cost of education be for your child when he/she grows up?
If you consider the average MBA cost from a prestigious university in India to be Rs.20 lakhs today, taking an inflation of 10%, the cost 15 years from now would amount to Rs.83.5 lakhs (rounded off). If you want international education for your child, multiply this cost further. Even for India, you need to save Rs.25, 000 every month (considering an interest rate of 8% on your investments) for 15 years to build up the required corpus. Are you saving enough?
Average inflation – 10% – 12% annually (as per National sample survey office (NSSO) )
Engineers/MBA cost in private institution
How to save?
When you have estimated the savings needed every month for your child, the next question which arises is how you can save which you can ask your Investment Planners.
There are multiple investment avenues available which you can pick. The most relevant ones, however, are as follows –
1.Mutual fund SIPs
The best way to save regularly towards your child’s education corpus is through mutual fund SIPs. SIPs let you save every month in a disciplined manner.
Moreover, if you choose equity mutual funds, which you can choose given your long-term investment perspective, you can earn good returns on your investments and create a larger corpus for your child’s education.
Expert Certified Financial Planners Tip:
Mutual fund SIPs are suitable for both the girl and boy child and allows you to save towards building a good corpus.
2.Sukanya Samriddhi Yojana (SSY)
The SSY scheme is meant to create funds for the girl child. It is a fixed income scheme which gives guaranteed returns on your investments. You have to invest every year towards the scheme to create a corpus.
However, your Investment Planners must have informed you about the two things that you need to note –
o The SSY scheme has lower interest rates (the current rate is 7.6% per annum) and
o The returns are not inflation adjusted since they are guaranteed.
Expert Certified Financial Planners Tip: So, if you choose the SSY scheme, you would have to invest a higher amount of money to create a decent corpus.
3.Unit linked child plans
Another suitable avenue is the unit linked child plan which is a life insurance plan providing both life cover and investment returns. You can invest in equity oriented funds to create good returns, a la mutual fund schemes. ULIPs also give tax benefits on investments as well as the returns that you earn. You can switch the investment funds without attracting taxation and the premium waiver rider ensures that the corpus is created even if the parent dies.
Expert Certified Financial Planner’s Tip: ULIPs, therefore, are a good choice but you should choose those plans which have zero premium allocation and administration charges so that the maximum amount of premium is invested for maximum returns.
Start building your child’s education corpus today so that when your child secures admission in a prestigious institute in India or abroad, you don’t fall short on the funds and help your child achieve his/her dream.