Every parent wants their child to achieve the best in their life. And for this, they start working from the day the child enters the school.
Parents work hard to provide the best education to the child. In order to achieve these goals, parents need adequate funds for their child’s future.
This is one of those responsibilities that parents take very seriously.
According to National Sample Survey Office ( NSSO), the annual tuition fee of higher education is estimated to increase 16 percent over a period of 2011-21.
http://www.mospi.nic.in/sites/default/files/publication_reports/Report_585_75th_round_Education_final_1507_0.pdf
A child’s education is the major outflow that every parent has to go through. Hence, it makes sense to do the right investment that will help to fund a child’s education.
Here are important steps you must do to reach your child’s education goal:
Planning ahead is the key.
Parents should plan ahead with a solid investment plan. Earlier the competition was less and professional courses were affordable. At present, the higher education cost is doubling on a yearly basis. After 10 years, professional courses from a private institute could cost around Rs. 50 Lakhs. The figure is worrisome; hence it’s important to plan ahead. Therefore, parents should need a solid investment plan to meet their child’s education goals.
Calculate the fund needed to meet the child’s education goals.
It’s important that parents should calculate the amount of money needed to meet the child’s education goal. And it’s important to consider inflation while determining your goal. Once the actual amount is determined, you can easily figure out the amount you need to save on a regular basis.
You can easily calculate the approximate amount needed to invest to reach your child’s education goal using the Children Education Calculator. With the help of a Children Education Calculator, you can easily calculate the monthly investment for your child’s education on the basis of career choices, place of education, the annual rate of inflation, and estimate corpus accumulated and cost of education.
Parents just need to fill in various details about their child. An estimated figure will come that they need to invest monthly to prepare for their child’s education. For example, if you need 50 lakhs for your child’s higher education after 10 years. Then you need to invest around Rs 25,000 per month (assuming 10% annualized return on investment).
Invest in the right assets
The interest income from life insurance policies is fully taxable. Hence, if you are investing in life insurance plans the net rate of return would be around 5 – 6%. As per data, the best performing assets for long-term investment are equity funds.
Investment products available in the market:
1. Real Estate- As the property rates are growing at a faster pace, real estate asset is undoubtedly the safest investment with higher returns. However, it might be difficult to sell the property in case of urgent funds requirements.
- Risks: Moderate risks
- Estimated Returns offered: 10-15%
- Minimum investment period: Not applicable
- Tax Rebate: 20% Tax deduction on taxable incomes
- Who should Invest: Any Individual
2. Fixed Deposit- FDs are one of the most popular investments. It is done via bank and is of two types: cumulative and non-cumulative. Cumulative deposit interest gets added back to the principal amount and payable at the time of maturity. In non-cumulative interest is paid as per the policy.
- Risks: No risks
- Returns offered: Fixed returns varies from bank to bank
- Minimum investment period: 7 days up to 10 years
- Tax Rebate: Allow deductions up to Rs 1.5 lakh
- Who should Invest: Investor looking for guaranteed returns with low-risk appetite
3. PPF(Public Provident Fund)- This is regulated by the Government and interest rates are revised on a quarterly basis. One can take a loan on a PPF account. Investment is completely secure as backed by the government. Money can be partially withdrawn after 6 years.
- Risks: No risks
- Returns offered: 7.1%
- Minimum investment period: 15 years
- Tax Rebate: Comes under the EEE category hence exempted from tax. Allow deductions up to Rs 1.5 lakh under section 80C of the Income Tax Act.
- Who should Invest: Investors seeking long-term investment with a low-risk appetite.
4. Gold- Gold investments are traded on NSE and can be bought and sold just like other company stocks. Though they are volatile in terms of risks, they tend to offer higher amounts of returns as well.
- Risks: Low to moderate risks
- Returns offered: Market linked
- Minimum investment period: Not applicable
- Tax Rebate: It is a debt fund and taxed accordingly.
- Who should Invest: Anyone
5. Recurring Deposit- Individuals can open RD accounts with any bank and deposit a fixed amount on a monthly basis. Interests earned are paid at the time of maturity. People with low income can start Investment and is completely secure as backed by the government.
- Risks: No risks
- Estimated Returns offered: 7%
- Minimum investment period: 1-10 years
- Tax Rebate: No tax rebate
- Who should Invest: Any individual
6. Post-Office Monthly Income Scheme (POMIS)- In this specific amount is invested every month. Investment is secure as backed by the government. It doesn’t offer any tax rebate.
- Risks: Low risks
- Returns offered: 7.7%
- Minimum investment period: 7years
- Tax Rebate: No tax rebate
- Who should Invest: Only Indian residents
7. Mutual Funds
The investment is market-related and done via various financial instruments like debt, equity, stocks, etc. The returns are generated on the basis of the market performance. Mutual funds are high risk as they are market-linked. But higher potential returns involved can’t be overlooked.
- Risks: low to high
- Returns offered: Market linked
- Minimum investment period: Lock-in investment period of 3 years for Equity Linked Saving Scheme (ELSS)
- Tax Rebate: Tax free u/s 80c for ELSS
- Who should Invest: Anyone
Mutual funds are broadly categorized into three:
Equity Funds:
In this 65% of investment is done in equity shares of different companies in suitable proportions. It aims for a higher rate of interest by investing in company shares. The risk involved is high. Suitable for Individuals looking for long-term plans like child education, marriage, retirement, etc. Inflation is adjusted over a period of time. You can invest in large-cap, small-cap, multi-cap, etc to suit your risk appetites and investment needs.
Debt Funds:
This investment is done via instruments like corporate bonds, government securities, treasury bills, commercial papers, etc. They don’t invest in equity hence less volatile and low risks involved. Good Option for short-term investment goals.
Hybrid Funds:
This investment is a mixture of equity and debt. It is ideal for beginners and involves low risks.
Investing in mutual funds through Systematic Investment Plan-
Systematic Investment Plan (SIPs) allows investment of a specific amount on a periodic basis. The SIP is linked to your bank account so a specific sum of the amount would be deducted automatically from your bank account on a monthly basis or at a frequency decided. In this, SIP helps to beat the inflation effects on your investment. It helps to grow your money effectively in the long term. Calculate your SIP as per the amount needed to meet your child’s education goal through SIP Calculator.
For example, if you invest Rs 24,819 every month through SIP, you can accumulate Rs 50 lakhs over 10 years, assuming 10% ROI.
For a child’s education Investing through L&T Mutual Fund systematic investment plan(SIP) is the right investment plan for your long-term investment goals with SIP’s in mid-cap and large-cap equity funds.
Why is the Systematic Investment Plan (SIP) ideal for child education planning?
1. Early investment reduces the financial burden to meet desired goals.
2. SIPs minimize the effects of investing in volatile markets.
3. You don’t need to go anywhere to deposit the amount. Money gets automatically deducted from your account. Hence convenient and no worries in case you forget the dates of the deposit.
4. Small investment with long-term goals aims to gives better returns.
5. There is increased growth potential on long-term investment.
Final Verdict
Investment in children’s education is the most important financial goal for parents. It’s important to start early, invest in the right assets, and be disciplined in financial goals. L&T Mutual Fund is ideal for choosing the SIP for your children’s education planning because they will help you invest in the right funds to ensure the success of your goal.
Always have the habit of reading the scheme-related documents before investing to understand the scheme type, investment patterns, and the risk factors associated with particular investments, and consult your financial advisor to understand the implication of any investment. The tax benefit mentioned above is as per current tax laws and is subject to change.
Disclaimer: This information is for general information only and does not have regard to the particular needs of any specific person who may receive this information. L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates; does not guarantee/indicate any returns/and shall not be held liable for any loss, expenses, charges incurred by the recipient. The recipient should consult their legal, tax, and financial advisors before investing. The recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
Having sufficient savings for their child’s education is every parent’s responsibility. Many parents decide to invest in Mutuals funds due to its low risk nature. Your post reminds me of my MBA summer training that we did in Standard Charted Bank in MF section.
We also invest in SIP’s ; find this the most convenient n effective way to invest money. This is a well researched blog.
Yes planning for child’s future education is a big worry for parents. and many often did not get solid option for doing that. this mutual fund systemic investment plan sounds like a great option to get rid of worry from child’s education planning. thanks for sharing all details. will check out this for sure.
We as a young family have already started saving for our children’s education! All the pointers mentioned are super helpful and I just showed it to my husband. Sharing it with other people!
Setting money aside for our kids’ education is something we learnt from our parents. Investing in mutual funds is a good and safe option.
Getting funds is the biggest worry now during the pandemic. Saving is secondary. But good tips for those who have the funds to invest and save for the future.
The plan indeed is v fascinating buddy, I will surely check it out for my kid at the earliest.
Systematic investment for kids’ future is very important and I am glad that you have shared this, it will help many parents like me to invest for their future.
Wow I must applaud you on the detailed level of information your post has provided. A wonderful job of research and of sharing knowledge!
Children’s education is getting expensive by the day and with the completion and FOMO we want them to know and learn many things. But this all comes with a price. So like you rightly said investing right to make sure you get good returns to help secure your kids education and future is essential.
The most crucial decision of a parent’s life, where to invest for the child education for the best and assured return in given time. Your well researched pointers on the Mutual funds plans is going to help a lot into this.
Even i strongly agree education for our children should be best and given the rising fees and education expenses investing in mutual funds and other financial tools is a great option
Planning in advance is very important for child education. Thanks for the post. I will surely check the mutual fund possibilities.
I have three kids. After reading your post I am convinced that I should also think about mutual funds. I am economically illiterate. You educated me actually
excellent tips and ideas. definitely investments, knowledgeably done is the best approach to grow funds and secure your and your family’s future.
Mutual funds are prone to risk for sure but they have good benefits for future as well. My cousin invested in them recently.
Investing in kids education is always worth and this is worth reading thank you for sharing the informative post.
I absolutely agree that we should start planning early for kids education and mutual funds are a good and reliable option. I have also been doing the same for my kids.