Featured Image Caption: Savings and Fund Management
Every parent wants best for his children especially when it comes to education. Education plays a major role in shaping the future of our children. However, the rising cost of quality education demands that parents start saving as early as possible. Below given table shows the growth rate of education courses in the last 10 years. We have taken 3 major courses, you can take any course your child is interested in and analyze the cost of education.
|Courses||Cost in the year 2009||Cost in the year 2019||Growth rate in the last 10 years|
|B.Tech||3.6 lakhs||10 lakhs||10%|
|MBA||5 lakhs||19 lakhs||12%|
|M.B.B.S||10 lakhs||25 lakhs||10%|
As parents, it’s our responsibility to make sure we have the necessary funds to facilitate our children’s education. And, this can only be possible if we plan long ahead, by managing our funds and investing them in the right direction.
Before deciding how much you need to save, you first need to decide the estimated fund requirement for your children’s higher education. Although it is tough to decide the actual amount, the best we can do is to consider a few important things like the course, in mind while doing our calculations.
Determine the amount your child will require
Currently the education inflation rate is 7% in India. There is a huge gap in the growth rate of education costs. The way education costs are rising, the cost of higher education in India for M.B.B.S can go upto Rs1 crore in next 10 to 15 years. So, you need to plan accordingly. The investment instrument you choose should include the duration and the fund required.
Expected fees of select courses in next 15 years-
|Courses||Expected cost in 5 years||Expected cost in 10 years||Expected cost in 15 years|
|B.Tech||16.5 lakhs||25.9 lakhs||41.7 lakhs|
|M.B.A||30 lakhs||49.2 lakhs||79.3 lakhs|
|M.B.B.S||40 lakhs||64 lakhs||1.4 crores|
If you are starting early, determine the cost of primary & secondary education. The annual cost you will calculate will determine the future amount by considering the rate of inflation. Sameway you can do for higher education and determine the approximate fun requirement. The easiest thing you can do is that you can benchmark the amount against the most expensive courses in India. This will help you in avoiding any shortage in future. Along with the educational courses, add transport cost, hostel fees, extra-curricular activities etc.
Choose your investment instruments smartly
There are several investment options available such as FDs, mutual funds, PPF, government schemes for children, Insurance policies etc. While choosing the best investment option, try to grab the one which is providing you the maximum returns. The selection of a plan should also depend on how much time is required to achieve your goal. One can go for short-term funds like fixed deposits, if you have less time to invest whereas long-term funds like SIPs are ideal if you are investing early.
Select your investment plan
- FDs- Fixed deposits are considered as one of the safest investment options as its returns are guaranteed and not linked to any market risks. Go for a reputed FD plan which can get you maximum returns on time. There are some companies which are providing FD interest rates of upto 8.33%. By opting this option, you can deposit the amount for 3 to 5 years and enjoy good returns. Suppose you invest Rs 10,00,000 for 3 consecutive terms of 5 years each, you get an extra 0.10% interest each time you reinvest.
- Public Provident Fund (PPF)- In PPF, the maximum amount that can be invested in a year is 1.5 lakhs. The best part is that you can enjoy tax benefits on the PPF amount. It’s a 15 year scheme so that when the child becomes an adult, the same account can be used by the child. After 15 years, the PPF account can be extended to 5 more years. Currently, the interest rate is 7.9 % per annum in PPF account, compounded annually and is paid on maturity term.
- Equity mutual funds- Both the above options are safe and will get good returns but will not be able to beat the inflation cost. To get the amount you are required, you need to invest in equity mutual funds. Considering your future goals, mutual funds are the best option if you invest for a longer duration. Equity works best if invested above 10 years. There are several mutual fund schemes that are exclusively aimed at children’s needs. Choose the best SIP plan according to your future needs and duration. Although the annual return received is 16.5% in the 10 years, equity mutual funds are not everyone’s cup of tea. If you have a good knowledge of the market, doors to success are open for you.
- Child insurance plans- You must be aware of life insurance policies which ensure that the child gets the amount at the right time if unfortunately the parent dies during the term of policy. These plans generally come with the higher amount as these assure the fund required for fulfilling your children’s needs.
The cost of education is rising day by day, if you don’t start now, funding for your children’s education will be more challenging in future. Starting early will provide a larger sum along with the power of compounding if you invest in mutual funds. A big amount of RS 1 crore may seem daunting but there are ways to save this amount with a simple SIP of rs 9000 for around 18 years. You can choose any investment option from the above given points according to your future goals. So, plan as early as you can and get the best investment instrument for your child so that you can give wings to your child’s dream without facing any shortage.