Child education planning

Your child’s career starts with your education corpus

Let's deep dive into one of the most important investments you'll ever make – your child's education. We all want our kids to aim for the careers they aspire to, but let's face it, quality education in India now comes with a hefty price tag. So, how do we navigate this financial maze and ensure our kids have the best educational opportunities?

Let’s break it down: From the moment your bundle of joy enters the scene, you're already thinking about their future – and that includes their education. It's about laying down the groundwork early on, setting them up for success, and giving them the tools they need to thrive in an ever-changing world. So, let's roll up our sleeves and dive into the realm of financial planning, where foresight is key and the possibilities are endless.

Now, let's talk strategy. When it comes to building a corpus for your child's education, we need to get creative and think outside the box. Here's how:

Where to Invest:

Education costs are growing at 12% per annum every year. The most popular investment options in our country are bank fixed deposits and recurring deposits. It will give you a guaranteed return in the range of 6-7%. But it fails to provide you with the inflation-beating return.

To understand the impact of education inflation, let's take an example. Consider a private engineering college that charged Rs. 2 lakh per year for tuition and fees in 2010. Now in 2022, the same college is charging Rs 6 lakh per year, representing an inflation rate of 200%. And if you are a parent who aspires to send your child overseas for studies, you need to budget not just for inflation but also for the impact of rupee depreciation of at least 4-5%  a year on your outgo.

Now, you have education costs growing at 12% and the money you are saving for it at 6-7%. This means you need to invest a whole lot more every month to build the corpus. Sometimes, you might not be able to keep that kind of money aside.

In short, we need to choose an investment option that beats inflation. And then there are Mutual Funds. If you look at the 20-year returns of equity-oriented funds, they are in the range of 10-12%, almost the same rate as the cost of education.

Time Horizon: Timing is everything in the world of investments. Depending on when your child's college admission is on the horizon, you'll need to tailor your investment strategy accordingly. If it's just a few years away, consider hybrid funds for a balanced approach. For a longer timeframe, dive headfirst into pure equity funds for maximum growth potential.

1. If your child’s college admission is 3-5 years away:

As you will need the money in the medium term, you should go for Hybrid Funds. If you are an aggressive investor, you can go for aggressive hybrid funds. The funds in this category invest up to 75% in equity and remaining in debt. Aggressive hybrid funds offer investors a balanced approach. These funds offer lower risks compared to pure equity funds due to diversification. However, their long-term returns are similar to equity funds. If you have a moderate risk appetite, you can go for balanced hybrid funds, and if you are very conservative, you can go for conservative hybrid funds, too.

1. If your child’s college admission is 7+ years away:

Since you are investing for the long term, you should go for pure Equity Funds. Now, depending on your risk appetite and how comfortable you are with volatility in your portfolio, you can pick from these categories

1. Largecap Funds / Index Funds (Nifty 50)

2. Flexicap funds

3. Large and Mid-cap funds

4. Midcap funds

5. Small-cap funds

It’s always good to do mutual fund investment through SIP for this goal. If you do monthly SIP, you need to put aside only a small amount. In addition to it, When you create a mutual fund basket for this goal it's good to invest in at least two funds rather than sticking to one fund. It helps to mitigate your portfolio risk.

How Much to Invest: Now for the million-dollar question – how much do you need to invest? Let's crunch some numbers and get down to business. Education fund calculators are your best friends here, helping you visualize the monthly SIP amounts needed to fund your child's educational journey.

Here's a handy table to help you visualize the monthly SIP amounts needed for your child's education:

Remember, it's not just about investing – it's about investing smartly. Diversify your portfolio, embrace volatility, and, most importantly, stay consistent. And why not make it a family affair? Get your kids involved, teach them the ropes of financial planning, and watch as they take charge of their own financial futures.