For parents, their world revolves around their children. While they work really hard to provide their children the best of the comfort, what tops their priority list is education.
Every parent wants his/her child to get the best possible education without any financial hurdle. But unlike the earlier days when competition was low and education fee in institutions was modest. Now-a-days the cost of higher education is not only high; it’s rising at 10-12 per cent every year. And in order to provide the best education in the coming years, it becomes significant for parents to invest in best options to meet their educational expenses and secure their future. However, the big question is: how to find the Best Child Education Investment and Saving Plan? Well to get the right plan, you got to plan well in advance and take the right kind of steps. And you can take a cue and chalk out your plan from this post.
Pick the career option
The foremost step is to plan for a higher education program. This step comes even before you even think of start saving. It’s early to pick an education option at this stage, sure. But you can identify two or three good career options for your child based on your wish and your child interest. When you do this, you can even get the estimated year when you are likely to spend this savings on the selected program. For instance if you are planning for engineering, you know, you are likely to spend this money when your child would turn 18.
Do the cost calculation
Now that you have picked the tentative education option, figure out the current cost of the program. Going by the engineering option, you can pick any government institute or private college, and find out current education cost applicable. You can get this information from website or from the institute itself. It doesn’t stop here. You have to now calculate the future education cost (difficult to get the exact estimation). You can get a tentative figure though. Consider 8-10% inflation every year and find out future education cost.
Find the yearly/monthly investment amount
The next step is to calculate yearly or monthly investment amount required for reaching the target amount. This is the tricky step as it would need you to assume expected returns from investment options where you will be investing money. The simple way to look at it using the PMT formula (Google will help you understand this better). It is nothing but a financial function that calculates
investment required for an option based on constant payment and constant rate of return. Doing this would give you a fair idea about the amount required for investment.
Pick your investment option
Now the best part of all your hard work – Finding the investment option which can generate a return as per your expectation. Investment in fixed deposit, term plan or ULIP for child education is not suggested. Also if you have a time horizon of less than five years, you will have to rely primarily on fixed income instruments, which are likely to offer a lower rate of return.
However, these offer guaranteed returns and safety of capital. If you have time in hand, mutual fund is one of the best investment options to be considered for child education planning. You should select 2-3 good equity oriented mutual funds and start SIP. Make sure you select mix of a large-cap and mid-cap fund for investment. And with every passing year, keep on increasing SIP on your salary increment. For conservative investors, PPF (a 15-year scheme that helps you to generate tax –free corpus for your child education) is an option to look forward to. You can partially withdraw money from PPF account after the sixth year and you can close the account after 15 years. However, please note that expected return of PPF is lower compared to mutual funds. The bottom-line is you have to plan and start investment at an early stage. It would be easier to achieve the target if you start investing at an early stage. And your children can reap the benefits!
To know more about best Child Education Investment and Saving Plan connect with our financial planning expert for a better and secure future.