A good amount of the portfolio should be in the liquid asset form.
The cost of education in India is rapidly increasing and it is becoming difficult to meet the growing fee structure and other costs aligned with higher education. It is thus important for parents to start investing early, be it with a smaller amount.
Many parents invest in gold or buy real estate for their future investments. But it must be ensured that if any asset is built, it should be liquidated for the purpose for which they have earmarked that asset. A good amount of the portfolio should be in the liquid asset form. Before deciding where to invest and how to grow the investment for their child’s education, there are some factors they should keep in mind always:
Calculate cost of education
Even if a rough estimate is taken, there is an inflation of approximately 10-12% in education. And even being prudent, if inflation is estimated at around 6%, then an MBA course that currently costs Rs 12 lakh will cost around Rs 37 lakh after 21 years and an engineering course that costs Rs 6-7 lakh at present may reach Rs 15-16 lakh after 16 years. Parents should have clear financial goals as based on the same, the strategic investment plans will be decided.
Check out these options for securing your child’s education safely:
Public Provident Fund: This is one of the long-term investment options that provide a striking rate of interest and returns on the amount invested. The current interest rate in PPF is 7.1% compounded annually. Here you need to invest Rs 1 lakh per annum and in around 15 years you get the amount approximately to Rs 31 lakh. This is one of the safest investments as it is run by the government and the lock-in period is 15 years. This account allows investment of a minimum of Rs 500 and a maximum of Rs 1.5 lakh for each financial year.
Sukanya Samiriddhi Yojana: This scheme was brought by the government in the year 2014 for a girl child of the age below 10 years. The minimum amount to invest in this scheme is Rs 1,000 and a maximum of Rs 1.5 lakh in a year. The current rate of interest is 7.6% compounded annually. The payment period is 15 years whereas the maturity period of the account is 21 years.
Mutual funds: Mutual funds are collections of such stocks and debts where your investment is spread across and the same is managed by an expert. For an extensive term, equity funds are more appropriate where one can invest in large-cap, multi-cap, mid-cap, or small-cap depending on risk attitude. Hybrid funds that invest both in equity and fixed income are more suitable for the educational purpose of the child.
The moment one needs to withdraw the amount, you can switch to debt funds so that the amount needed at the required time is not affected by market volatility. The investment for child education in a mutual fund should have three features—a long-term horizon, a high target, and no need for immediate cash flows. You can create a systematic investment plan starting from `500. For a sizable corpus that is needed for the child’s education, the recurring nature of SIPs helps in establishing a discipline in investing regularly.
A child’s education corpus should not be affected even in case of emergency. So, plan for medical insurance and life insurance (preferably term insurance) for all kinds of emergencies and try not to touch the investment plans for your child’s education.