In this blog, we will explore the best ways to save for your child’s education! Education in India is viewed as a stepping stone to a good future.
The race to get children into the best colleges is so keenly fought that every Indian parent can qualify for a role of an expert counselor. The “padhai karo, nahi tho achchi Naukri kaise lagegi” line is so often heard that it could very well replace the “so jao, varna gabbar aa jayega” line.
The belief that a good education will provide for a good life, is entrenched in the way we think. Indian parents are willing to go to lengths to provide their children with the best education and are ready to spend as much as it takes. Many parents start saving when their child is very young, to prepare for future college-related expenses.
In this blog, we will look at 5 avenues where Indian parents can consider investing their hard-earned money.
5 Best ways to save for your child’s education
Your child’s education does not deserve to be compromised and here are some ways in which you can plan ahead and start taking small steps toward your child’s college fund.
Let’s get started.
1. Investing in Mutual Funds
We’re sure you have heard of the phrase ‘mutual funds’ Sahi hai! And when it comes to saving up for long-term investments, mutual funds definitely Sahi hai!
Investing in mutual funds as a way to build a corpus fund for a particular goal has gained a lot of interest in the past decade or so. Building a retirement fund or a home purchase fund is very common and a small percentage of investors are also parents keen on saving up for their child’s education.
Investing in mutual funds is viewed as a potentially high-return investment with the risk involved since the returns on mutual funds are market-related.
Markets have been extremely volatile in the recent past, but mutual funds should still form a large part of an education fund, considering the longer time horizon involved.
It is possible to invest as per your risk preference and redemption is far easier when you need the money.
With Systematic Investment Plans (SIPs) that give you the option of investing monthly, there is a possibility of better returns compared to one-time/lumpsum investment mutual funds, especially over longer investment periods.
2. Exchange Traded Funds (ETFs)
For those of you who are unfamiliar with the concept of ETF, it is basically a basket of securities that is traded on an exchange. They are similar to mutual funds.
Investing in ETFs can prove to be a successful investment option when saving up for your child’s education.
The reason is, that you will be investing your money in dollars, therefore, if your child aspires to pursue his/ her education abroad, the dollar holds more value than many other currencies.
3. Buying Insurance Plans
Buying an insurance plan to provide income security to your child is also an option. Many of these so-called child plans provide insurance cover and also market-linked returns after a fixed tenure.
However, returns on these plans have been volatile and impacted by frequent regulatory changes. Also, child insurance policies may not be the best investment option, because they are bound by various terms and conditions.
4. Buying Real-Estate
Yes, this holds true for parents trying to save up for their children even today. Real Estate is considered by many, to be a good long-term investment.
Since the time horizon that parents should consider is 15-20 years, real estate investments are good to maintain a diversified portfolio.
But, real estate has lost its sheen as an attractive investment option over the past decade or so, due to excess inventory and regulatory impacts.
There are a number of hassles when investing in real estate. Other than the declining returns – unreliable deals, possible legal tangles, and a high wait time when one wants to sell are some of the factors to consider if this is an investment option for you.
5. Investing in PPF
In India, the Public Provident Fund, or PPF is the go-to option for many parents when investing in their child’s future. It is a low-risk option that is exempt from tax on the withdrawal. The returns are lower but predictable.
However, there is a limit to the amount of money one can invest through this route – the upper limit is Rs. 1,50,000, annually.
PPFs are also less suited when an investor is ready to take more risk and willing to invest in market-linked funds.
FAQs
How can we save for children’s education?
Ans. Investing in mutual funds, exchange-traded funds, buying insurance plans, buying real estate, investing in PPF.
What is a good educational plan?
A solid educational plan will give your family and you a road map for your future educational and professional objectives. Although parents and kids are free to start as early as they’d like, planning for college and technical training at the middle school level is not too early.
What is the best savings plan for a child?
Ans. Sukanya Samriddhi Scheme, Make Investments in Gold, Invest in Equity Mutual Funds, Investments via Recurring Deposits.
Why save for your child’s education?
Ans. You can avoid taking on significant debt to pay for your child’s higher education by starting a savings plan early, even before they enter kindergarten.
What is the right time to start saving for your child’s education?
The right to start saving for your child’s education is as early as possible. The earlier you begin, the better it will be for your investments, as you’ll be able to take advantage of the power of compounding.
Conclusion
We hope now you have a decent idea of what investment options you could consider, as well as the pros and cons of each.
In our next post, we will look at why we think mutual funds – through SIP mode – are a good way to build a corpus fund with the goal of educating your child.
With this kind of education fund, you can stop worrying about the finances that are required to send your child to the college of her dreams.
Your investment today will gift your child a good life, tomorrow.
