How to Plan for Your Child's Education Fund

How Much Money Do You Need for Your Child’s Education?

Calculating the amount of money you will require to fulfil your child’s educational needs in the future depends on various factors:

• Field of Study: The field of education, like engineering, medicine, or law, affects the amount of corpus you will need to develop for your child’s future. Different fields of study have different cost structures.
• Domestic or international education: The cost of your education fund also depends on whether you wish to send your child abroad for education. Studying abroad can be very costly and might need a larger investment.
• Kind of Institution: Choosing between enrolling your child in a government or a private university can also reflect in your future corpus. If you wish to enrol your child in a private institution, you might be required to invest more to meet the fees of the institution.
• Child’s current age: The cost of education is set to rise year after year. Thus, the current age of your child is necessary to take into account when calculating your required corpus amount. A longer time horizon also gives you a longer duration of time to invest.

How Does Inflation Affect Your Child’s Education Fund?

Inflation is one of the key factors which might affect the purchasing power of your corpus in the long run. Just as your investments compound over time, the cost that your investment is supposed to fulfil also rises. Delaying your investments can lead to an increase in the investments you make for the same goal. This is due to the rising cost of the goal itself. Always ensure you calculate the future cost of your goal before you start investing.

Example: If your child is 3 years old and the fee of a college you wish to send her to is ₹2 lakh per year. If the inflation rate of education is 12% and your child will start college when she turns 18, the cost of the same college in 15 years will be ₹11,40,000 per year.

Planning for Your Child’s Future Education

1. Decide your monthly budget.

   Determine the target amount that you need to save every month, and ensure you meet your monthly goal.

2. Invest Early

   Planning your child's education fund is a long-term process. The best time to start investing to secure your child’s future is when he/she is born. It is crucial to understand the importance of early investment so that the benefits can be maximised when your child is old enough to attend college.

3. Avoid investments with low returns.

   In today’s day and age, meeting children’s educational requirements is expensive because of the price hikes due to inflation in the education sector. Therefore, it is very important to invest in those instruments that provide you with higher returns.

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4. Invest in Child ULIPs

   Invest through a child-focused ULIP with the premium waiver feature to ensure that the child gets the required amount at the desired age. Equity fund options are also available for child ULIPs for investment purposes to secure the best benefits over the long term. As a parent, it is always advised to have a sufficient term insurance policy so that any uncertainty or unfortunate event does not disrupt your children's needs.

5. Invest in Government-Backed Investment Options

   Invest in government-backed options like PPF. PPF is a 15-year investment scheme that provides tax-free savings. One may also consider investing in PPF for your child's educational needs by opening a Public Provident Fund (PPF) account in the name of a child. PPF provides the option to partially withdraw money after six years in times of need. Once the child becomes an adult, contributions will also be made by the child, and then the same account will be extended.

6. Invest in a Long-Term Investment Option

   The financial goal of investors might vary based on their requirements. There are several investment options such as gift funds and debt funds. If you wish to invest in mutual funds or even directly in equities, you must be invested for longer periods. Children’s gift is also another investment option that comes with a lock-in period. It allows the parents to stay invested for longer periods and allows benefits from compounding power.

7. Recognise your existing investments.

   If you have invested in different investment schemes such as PPF or FDs, i.e., Fixed Deposits, then those investments will surely help you in meeting your financial goals. Also, you should get a clear idea about how much more savings are required to achieve a target.

Conclusion

Building a corpus for your child’s education needs long-term and sustained investments to ensure that your child is able to get the education of their dreams. You can read about the Best Child Plans and invest in a plan that best suits your future goal and financial appetite.