Planning for a child’s education is an important financial goal in a person’s life, which goes along with other important targets like child’s marriage and your retirement. As a parent, it is natural for you to seek the best for your child. But remember the best is always expensive. Hence, planning for child’s education in advance assumes great significance in financial planning, as it is concerned with your child’s future. Let’s look at a few important things to consider while you plan for your child’s education.
Ø Plan the place and time of education
ü Children today are smart enough to decide the type of education they want. However, as a parent, you must plan your child’s future well in advance.
ü One must decide if he wants his child to go abroad for his education or not.
ü If you wish to send your child abroad for graduation as well as post-graduation, you should plan for both, as the cost can be pretty expensive.
ü Determining these factors is very important for your next step of planning.
Ø Cost of funding child’s education
This is another variable which you must try and estimate with reasonable accuracy.
ü After deciding where and when you would want to plan your child’s education, you should determine how much it is going to cost you in present day term.
ü Although this step is pretty simple, difficult part would be to estimate what it is going to cost you when your child is ready for his graduation/post graduation.
ü Remember that predicting inflation in school fees is much more difficult than predicting inflation for other expenses. This is because schools generally increase fees in bulk every 2-3 years, making average annual inflation numbers much higher than normal.
ü Study historical trends and take an average annual inflation, more on the conservative side. You can apply this inflation number on present day costs and estimate how much it will cost in that particular year of study.
ü Apart from school fees, you must also factor in other expenses like food, accommodation and other expenses. Estimate your total cash outflow and plan accordingly.
Ø Insure yourself sufficiently
ü If there is a sudden death of the breadwinner of the family, child’s education plan suffers in most cases. This is because the family does not have sufficient insurance backup to support education, as there may be other important priorities.
ü Ensure that you have insured yourself adequately, considering all your financial goals, including your child’s education.
ü Take a simple term plan and do not opt for fancy products which promise your child’s future, as these may prove to be costly and not that useful from an insurance perspective.
Ø Make smart investments to build the corpus
ü When you have determined how much corpus you will need for your child’s education, you must start to save to achieve this goal.
ü To determine which kind of investments you must invest in to build this corpus, you should consider the number of years left for the goal.
ü If the goal is about 3-10 years away from the present day, you can consider investing 50%- 60% in equity, about 20% in gold and the remaining in debt instruments.
ü Similarly if your child’s education is more than 10years away, you can consider investing 75% in equity, 10%-20% in gold and the remaining in debt instruments.
ü Generally short term goals are not funded by gold and equity. So if you are left with less than three years to fund your child’s education, you must avoid these two investments and invest in debt and fixed income products.
ü When you invest in equity, look at 3-5 good quality, highly rated mutual funds as these are far safer than direct equity investments.
ü Remember not to dip into these investments to meet other goals, unless there is an emergency.
Ø De-risk your portfolio when the goal is near
ü You must de-risk your portfolio when you are close to the time of your child’s education. This means you must shift from high-risk investments like equity and gold, to safer investments with relatively lower risk, like fixed deposits and safe debt mutual funds.
ü This can be done when the goal is less than three years away, in a systematic manner and not in one shot.
ü The main purpose of de-risking your portfolio is to make sure your gains are not eroded due to the volatility and that the planned amount is available at the time it is needed.
Ø Start today
ü Delaying savings is one of the main reasons of getting lower gains in your portfolio.
ü Irrespective of your child’s age and the time left for your goal, you must start investing for it today itself.
ü The earlier one starts saving and investing, lesser the amount needed on a monthly basis to achieve the same corpus.
ü You can easily meet your child’s education expenses by planning in advance, following simple steps and start investing at the earliest to achieve this goal.
Disclaimer : The information contained in this report has been obtained from sources considered to be authentic and reliable. However, Rajul Investment will not be responsible for any error or inaccuracy or for any losses suffered on account of information contained in. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objective of the Scheme will be achieved. Past performance of the Sponsor/AMC/Fund or that of any scheme of the Fund does not indicate the future performance of the Schemes of the Fund. Please read the Key Information Memorandum and Offer Document carefully before investing.
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