Being a parent is tough, there’s no doubt about it. Chances are you already spend a lot of time fretting over your child’s health, homework, and social skills. Then, there is the thought about your child’s future. And, you wouldn’t want the lack of funds to become a hindrance in the way of your child realizing their dreams.
The cost of education, especially in India, is snowballing at a fast pace. From primary to secondary to higher education, the burden to invest for education keeps increasing with time for parents. It’s challenging for parents to encounter the growing fee structure and other costs linked to education. Rather than investing on an ad-hoc basis, it is crucial that you put a plan in place to save for your child’s future. The best time to begin financial planning for a child’s education is when you are aware that you are going to have a baby in a few years. The earlier you start, the more you benefit from the compounding returns.
Where to invest – One should note that starting early isn’t enough. You should also know which mutual fund investments you should consider to gain optimum returns. You can consider investing in mutual funds to meet your needs. One of the major benefits of mutual funds is that it offers various investments that meet the needs of almost all investors. For instance, if you can afford to invest for a long period, say 10 to 15 years, equity mutual funds are your best friends. These funds offer high returns at an average 15-17% when invested for a long duration. Over such a long duration, the volatility in returns gets flattened out. However, if you want the funds in 2-5 years, investing in debt funds would be a wiser choice.
Determine the cost – With the world witnessing new types of courses being added every now and then, it’s difficult to speculate what your child might pursue when they grow up. So always take 2-3 career options to find out their current cost. Inflate it by considering a conservative inflation rate at 6 to 8% p.a. for the investment horizon.
Essentials: For better management of your finances, create a separate portfolio for your child’s needs. In case, you have you more than one child, earmark funds separately. Also create different buckets of investment for all the educational cost that would arise in short-term, mid-term, and long-term for each portfolio. Track these investments closely.
Mutual funds for your child’s needs – Stick with diversified equity funds for your portfolio. You can also start an SIP (Systematic Investment Plan) in equity-oriented mutual funds with an amalgam of large-cap and mid-cap schemes. You can also consider investing in ELSS (Equity-Linked Savings Scheme) that will not only generate wealth for your child’s education but also save tax.
Have the discipline to not touch your child’s education funds for any other purpose. Financing your child’s education is, indeed, one dream you cherished the day your baby was born. Hence, don’t do anything that might stop you from realizing that dream. Happy investing!