Investing for your child’s education

Kids tend to grow up faster than you’d like and believe me it would not be long before you are caught up in that clichéd parental dilemma of ‘how can I get the best education / degree for my child’.  What dilemma, you ask. Of course, you have already figured it all out. You will leave it to your little one to decide what he wants to do and then support him through. And yes, you have planned your savings to have the funds in place to meet the associated costs.

But let’s take a minute to put things into perspective. Say, your child will be ready for post graduation in 15 years time. Current rates of inflation in the education space are anywhere between 5 to 20 percent. It would be safe enough to assume that the average cost of a post graduation program could be in the vicinity of Rs. 50 lacs for a 2 year resident course in an Indian school of reasonable repute.

Assuming you save an amount every year and manage to get an average annual return of anywhere between 7-10% p.a. you will need to save anywhere between 1.5 lacs to 2 lacs every year for the next 15 years.

What if the cost of education was Rs. 75 lacs – well your required annual investment range just went up to Rs. 2.3 lacs to Rs. 3.0 lacs.

Now that’s not exactly chicken feed, is it?

And these amounts can go up exponentially in case you start considering an overseas education for your child.

The idea should be to start early in planning for your child’s education. Determine the amount that you will need to save for your child depending on his/her age. The earlier you start and higher the time horizon to when you need the money, the higher is the possibility of getting some real capital appreciation on your portfolio in the initial years. Since you have time on your side, you can potentially aim for higher returns through investments in stocks and equity oriented funds during the first few years and gradually adjust the portfolio to risk averse investments for capital conservation.

Once again you are spoilt for choice – there are enough and more products across the savings, insurance and investment categories that promise you they can help you meet your financial goals. Each of these products across savings, mutual funds and insurance comes with a set of benefits and charges.

Whilst savings products would be designed for accumulation of funds to meet your requirements; the insurance products would be designed to meet both the accumulation requirement and to ensure that these requirements for the Child are met in the event of the death of the Parent.

One should carefully review and compare all available options to choose what product best meets your requirements at the lowest costs before making a long term investment decision.