An ideal and most gainful means of setting the foundation in the life of an offspring can be none other than education. To a great extent, the value of education has increased where the tuition expense is also increasing, that is why parents are required to plan and enjoy their child’s training. Furthermore, escaping the effect of inflation that will choke people’s purchasing power and comfortable lifestyle by investing in one’s children as much as one can in education assures oneself of being a good provider.
Understanding the Cost of Education in India
The cost of education in India has been rising steadily, with premier institutions charging lakhs of rupees annually. For example, a four-year undergraduate degree in engineering can cost upwards of ₹10 lakhs today and might double or triple in the next 15-20 years due to inflation. International education or advanced degrees like MBAs may run into crores.
Given these dynamics, an excellent plan for the education of one’s child is in place to reduce future burdens associated with finance. So, where to begin? It all comes down to selecting the right investment options that can be availed in the long term.
Benefits of Long-Term Investments in Education
In fact, before coming across the instruments, the pros associated with long-term investments should first be mentioned:
- Compound Growth: It gives the benefit of compound accrual wherein the earnings get compounded to yield higher profits.
- Inflation Protection: They fill the gap between the savings today and the educational cost in the future.
- Tax Efficiency: Most of the investments allow tax advantages under Indian taxation.
- Goal-Based Savings: Investments against a child’s education goal give the avenue for saving systematically.
The following are some established strategies and instruments that may assist in securing the future of a child.
- Child Education Plans
This plan is a child education-specific insurance cum investment for purely educational purposes. It will provide a certain amount of money at certain milestones, such as college or university admission.
Why Invest In It?
- Guaranteed maturity payouts at critical points of education.
- It also provides the advantage of life cover to protect the monetary interests of a child in case of an unfortunate untimely death of one of the parents.
- Debt-oriented funds and equity fund options are often available.
Pro Tip: Compare various child education plans to analyze their maturity benefits, premiums, and fund performance before investing.
- Systematic Investment Plans
SIPs in mutual funds are one of the best sources of long-term wealth creation. Periodic investment of fixed amounts helps in creating an adequate corpus over time.
Why Invest?
- Equity mutual funds provide higher returns over the long term and, hence are apt for long-term purposes like education.
- Flexibility to initiate with small quantities and increase contribution based on growth of income.
- Diversification across sectors and industries.
Pro Tip: Invest early, and go for equity-oriented funds that have at least five years of track record.
- Public Provident Fund
PPF is one of the safest investment options supported by the Government of India. It is available with a lock-in of 15 years and is well-suited for long-term objectives.
Why Choose It?
- Guaranteed returns with attractive interest rates.
- Exempt-Exempt-Exempt (EEE) tax status, meaning contributions, interest, and maturity amounts are all tax-free.
- Low-risk option for conservative investors.
Pro Tip: Maximize your annual contribution to the PPF limit (₹1.5 lakh) to fully avail of tax benefits.
- National Pension System
The NPS, which is well-liked as a deposit scheme for pensioners, can also be used to pre-plan your kids’ education. This is possible if the investment is a mix of equity, corporate bonds, and government securities.
Why Choose It?
- Flexible asset allocation.
- The lower management fee of the Fund means more chance of getting the fund returns more than you expect.
- Suppose Your Taxable Income is 5 lac Total Deduction under Section 80C, 80CCD(1), 80D is INR: 2.5 lacs. In your case, the remaining is INR 2 lakhs instead of INR 4.5 lakhs to invest in a bond that gives up to 8.3% in SGBs.
Pro Tip: If you need money to pay for your children’s education, a Tier-II account can also be useful in that regard.
- Gold Investments
The gold-based investment trend has always been a favourite among Indians. You may now invest in this cherished asset as Gold ETFs and Sovereign Gold Bonds elaborate on transparent methods, and digital gold does not involve the barter of physical commodities.
Why Invest?
- Investment against inflation.
- Liquid, of course. In case of emergencies
- Value appreciation over the long term
Pro Tip: Earn a tax-free additional interest of 2.5% p.a. over and above the sum invested when purchasing Sovereign Gold Bonds
- Unit-Linked Insurance Plans
ULIPs is also a hybrid that combines life insurance with investing. Of every paid premium, a part goes for funding life cover, while another part gets re-invested in either pure equities debt funds or any balanced funds.
Why choose this one?
- Tax saving by investing under Section 80C and Section 10(10D).
- Free flow to switch between the different funds with a view towards changes in the market conditions.
- Best for disciplined long-term savings.
Pro Tip: Low fund management charge and stable returns giving history regarding ULIPs
- Fixed Deposits and Recurring Deposits
For conservative investors, bank FDs and RDs are a low-risk and safe bet. Though the returns may not be very high as compared to the market-linked investments, they are guaranteed.
Why Consider It?
- Guaranteed returns irrespective of the market.
- Easy to stagger investments for different milestones.
- Liquidity options are available with a penalty.
Pro Tip: Special education-focused FDs from some banks are higher in interest.
- Real Estate Investments
Real estate is also a good viable long term investment, especially where the property appreciates enormously in growing urban areas.
Why Invest?
- Tangible asset with dual benefits of rental income and capital appreciation
- Can be used as collateral to secure education loans
Pro Tip: Do proper due diligence and choose locations with high-growth
Factors to Consider When Selecting Investment Options
- Risk Appetite: By figuring out the proper amount of risk you can bear with and going for market-linked investments for a higher risk strategy or choosing bonds backed by credit-worthy companies for a more conservative approach.
- Time Horizon: The longer your investment horizon is, the more willing you are to assume more losses in exchange for gain.
- Inflation Rate: Always try to invest in a product that gives you a return that is higher than the inflation rate.
- Diversification: One of the things that you should diversify shares, bonds, and other assets to reduce the probability of a disastrous investment.
- Liquidity: No matter how big or small your savings are, you have to guarantee them to be accessible in case of a crisis.
The Importance of Starting Early
The more quickly you save for the future education of your child, the bigger your corpus will be due to the wonderful phenomenon of compound interest. For instance, if you invest ₹10,000 a month in a mutual fund which is mainly involved in shares and get an interest of 12% per annum, then you will have saved about ₹1 crore in 20 years. In addition, this will give you a chance to take risks you are most likely to succeed and your portfolio will be balanced and you will make money.
Conclusion
Funding your child’s education in India requires a proper strategy and disciplined execution. There are many options one can use to create a secure financial foundation. A few of these include: child education plans, mutual funds, and government schemes like PPF.
This will ensure that your child’s educational goals are achievable without sacrificing financial security. It really does not matter whether one prefers the predictability of fixed-income instruments or the growth possibilities of equity-linked plans-the secret lies in sticking to the strategy and staying in line with goals.