According to a report by ET times, it was pointed out that the costs of higher education have has gone up by almost 10-12% per annum in the past ten years. With such high costs, planning for your child’s education has become more important than ever. Definite saving and investment plans such as the child education investment plan make certain that parents are well equipped financially to fund their child’s academic endeavors without rivaling the rest of their plans for money.
What are child education investment plans?
What is the best investment plan for your child’s education? When should you start investing for your children? Let’s explore all the facts in this blog.
A child education investment plan is a plan to systematically invest for your child’s higher education. The costs of education are skyrocketing. A recent twitter post by a father in Delhi showed how the playschool fees for his son’s one year of schooling was nearly ₹4,30,000!
Inflation in the education sector is nearly 10-11%. More than the average retail inflation in our country. From school to college fees to living expenses related to education are increasing faster than our average salaries. Thus, the need for a child education investment plan that can help parents tackle this cost is tremendous. A child education investment plan includes a series of investments that you can consider in order to save for your child’s education.
These investment options and plans can help you easily save for your child’s college and school fees. Without compromising your current savings or limiting your expenses, you can start investing in these plans with a minimal cost and eventually increase your investments as your child grows and your salary maximizes. Let’s look at some child education investment plans and the various investments within its gambit.
hild education plan is a financial product which aims at providing the innocuous mode of saving for and investing in the education needs of a child. It is a combination of the savings and insurance feature so as to have money when the need arises, including in an emergency.
Purpose:
- Plan to set up long-term educational goals for the financial future.
- Provide insurance to act as a shield to help cushion the policyholder in case he or she is not around.
Types of child education investment plans
Fixed deposits (FDs):
- Why Choose It: Fixed deposits are conservative investments that involve minimal risks and are secure investment opportunities with assured returns.
- Pros: Because of their stability and predictable returns, they are suitable for use as a short-term investment.
- Cons: Slower growth compared to other equity related instruments and may not always maintain the buying power of the money.
Mutual fund
- Why Choose It: Mutual funds are an excellent supplement to child education plans for parents seeking higher growth potential. Mutual funds, especially Systematic Investment Plans (SIPs), are some of the common mutual funds that provide a monumental return by investing in the equity and debt markets.
- Pros: Higher returns over the long term and flexibility to start investing with small amounts.
- Cons: Market linked risks, although they can be managed through long-term investment horizon.
Digital gold
- Why Choose It: Digital gold is gaining popularity as a hedge against inflation. It provides liquidity and growth potential, making it a smart addition to an education investment portfolio.
- Pros: It is relatively easy to invest in and gives portfolio diversification.
- Cons: Does not produce an income or returns as often as mutual funds do.
Child insurance plans
- Why Choose It: These plans combine savings with life insurance to provide a lump sum at maturity or in case of the policyholder’s demise.
- Pros: Security and discipline in savings.
- Cons: Limited flexibility in terms of withdrawals and fund management
Best Investment Plan for Child Education in India in 2025
What is the best investment plan for child education? What asset should you choose for your child’s higher education savings? Which asset can help you keep up with the growing education costs in India? The answer is simple and highly convenient – it is Mutual Funds.
Mutual Fund is the best investment asset for saving for higher education. Mutual funds have historically given returns of 10-12% over a long horizon. Successfully keeping pace with education inflation rate which is at 10%. Mutual funds are affordable, you can start investing with just ₹100 monthly and increase your investments systematically.
The greatest benefit of Mutual funds is that they are managed by professional fund managers. At minimal cost, you have experts watching your portfolio and making the necessary adjustments to ensure your money grows at the intended pace. Mutual funds’ transparency over costs and its investment strategies is another major benefit. Here are some mutual funds that you can consider you are planning to invest for child education and their college needs.
| Sr. No. | Scheme Name | Category | Sub-Category | Inception Date | AUM | Expense Ratio | 1Y Return | 3Y Return | 5Y Return |
| 1. | Nippon India Small Cap Fund | Equity | Small Cap | 1/1/2013 | 43,816 | 0.67% | 59.3% | 42.60% | 31.57% |
| 2. | HDFC Mid-Cap Opportunities Fund | Equity | Mid Cap | 1/1/2013 | 56,033 | 0.80% | 53.99% | 33.89% | 25.41% |
| 3. | SBI Contra Fund | Equity | Contra | 1/1/2013 | 21,482 | 0.69% | 45.69% | 33.46% | 26.70% |
| 4. | HDFC Balanced Advantage Fund | Hybrid | Dynamic Asset Allocation | 1/1/2013 | 73,349 | 0.80% | 38.43% | 27.55% | 19.72% |
| 5. | DSP Nifty 50 Equal Weight Index Fund | Equity | Index (Large) | 10/27/2017 | 1,004 | 0.40% | 33.31% | 23.64% | 18.89% |
Note: All are Direct plan and growth option; AUM and Expense ratios are as on December 31, 2023; 3Y/5Y returns are annualized and as on January 30, 2024. Source: Value Research
Note: Mutual fund investments are subject to market risk, please read all scheme related documents before investing. Past performance is not indicative of future results. This is not an investment recommendation.
Benefits of Child Education Investment Plan
The cost of education is rising rapidly, making it crucial to plan and invest early for your child’s future. Tuition and fees increased more than 2,200% from 1970 to 2020. Meanwhile, inflation was around 600%. Here are 7 benefits of child education investment plan:
- Beat Inflation: Education costs are outpacing inflation. By starting early, you allow your investments to grow and counter the rising costs of universities, colleges, or specialized programs.
- Peace of Mind: Knowing you have a dedicated fund for your child’s education reduces financial stress and allows you to focus on other aspects of their upbringing.
- Power of Compounding: Starting early allows you to leverage the power of compound interest. Even small regular investments can grow significantly over time, thanks to interest earned on interest.
- Flexibility: Many child education plans offer flexible payout options. The corpus can be used for various education-related expenses, including tuition fees, accommodation, or study materials.
- Discipline & Habit Building: Regular contributions inculcate financial discipline in you and teach your child the value of saving for long-term goals.
- Freedom of Choice: A well-funded education plan empowers your child to pursue their desired educational path without limitations due to financial constraints. This could mean attending a dream university, pursuing a specific program abroad, or taking on internships without financial worries.
- Secures Your Child’s Future: Investing in your child’s education is an investment in their future. A good education opens doors to better career opportunities, financial stability, and a brighter future.
Best Investment Options for Child Education
Let’s look at some of the best investment options for child education available to parents in 2024.
- Education Savings Plan
Education savings plans are investment plans that allow you to save for your child’s education costs. Some plans are incentivized and may offer tax benefits such as Sukanya Samriddhi Yojana in India offers tax exemptions under section 80C of the Income Tax Act of 1961. Some are extremely affordable with minimal investments starting at ₹100 or 1000. Let’s cover some education savings plan that you can utilize.
Sukanya Samriddhi Yojana
It is a unique child investment plan for parents of a girl child. This is offered by the Indian government to encourage parents to save and invest in their daughters early on. The main objective of the SSY program is to encourage parents to make substantial financial commitments to a strategy for their daughters’ future education and marriage.
Parents who have girls under the age of ten can invest in the SSY program. The SSY program investment is locked in for 21 years post-account opening. Investments made in SSY accounts are eligible for tax deductions under Section 80C of the Income Tax Act of 1961. Each year, a minimum investment of ₹250 must be made, and a maximum investment of ₹1,50,000 may be made. SSY accounts can be opened and utilized at any location of an accredited bank or the India Post Office.
529 Plans
529 plans are a powerful tool for US residents to save for a child’s future education. 529 plans are tax-advantaged investment accounts. They are designed specifically to encourage saving for education expenses.
The beauty of 529 Plans is that contributions to a 529 plan grow tax-free federally. This means all earnings on your investments compound without being reduced by taxes, maximizing your potential returns. Similarly, withdrawals from a 529 plan are completely tax-free at the federal level if the earnings are used for qualified education expenses. Some states also offer additional state tax benefits.
Contributions to a 529 plan can be made by anyone, not just the account owner. This allows grandparents, relatives, or friends to contribute towards a child’s education. This plan is not available for Indian citizens and only open for American citizens.
Coverdell ESAs
Coverdell ESAs are another tax-advantaged investment account option in the US for saving towards a child’s education. The contributions are not tax-deductible federally, but earnings within the account grow tax-free if used for qualified education expenses. The annual contribution limit for a Coverdell ESA is capped at $2,000 per beneficiary per year.
Coverdell ESA funds can be used for a wider range of qualified K-12 expenses like tuition, fees, tutoring, and even some educational materials. You can open a single Coverdell ESA for multiple beneficiaries if they meet the eligibility criteria.
This investment option is not for Indian citizens.
Tax benefits and withdrawal rules
Tax benefits as well as withdrawal rules depend on the type of education savings plans you have chosen.
- Some plans offer tax deductions for contributions, reducing your taxable income.
- Investment earnings within the plan typically grow tax-free.
- In the case of 529 Plans and Coverdell ESA, withdrawals used for education expenses are usually tax-free. Under Sukanya Samriddhi Yojana Scheme, the girl child can make an early withdrawal of up to 50% of the balance in the account at the age of 18 years before the maximum maturity tenure of 21 years. However, this amount can only be withdrawn for her higher studies or marriage.
Important Note: It’s crucial to research the specific plan you’re considering understanding its contribution limits, investment options, tax implications, and withdrawal rules.
As mentioned earlier, mutual funds are a game-changer. They are the best investment asset in India to save for your child’s education needs. The ease of investing in mutual funds, transparency, affordability as well as the tax benefits may them an amazing investment tool for your long-term goals such as your child’s college savings.
When saving for your child’s education through mutual funds, you need to consider the investment horizon (timeframe until the funds are needed) and your risk tolerance. Here’s a breakdown of suitable mutual funds and how they differ:
Key features of child education investment plans
- Lump-Sum Benefit
These plans give a sum of money at the end of a stipulated period or in the event of the policyholder ’s death. This guarantees that the child’s education is financially protected regardless of the situation.
- Premium Waiver
In case of unfortunate event of the policyholder demise, the future premiums are waived off, thus keeping the policy on and securing the child’s future.
- Partial Withdrawals
There are possibilities of partial withdrawals under child education plans depending upon tenure. This feature is useful when someone needs to meet any emergent education related expenses.
- Life Cover
These plans ensure the child’s education remains uninterrupted by offering life cover and therefore guaranteeing the child’s future even in the difficult times
Benefits of investing in a child education investment plan
- Financial Security: These plans provide peace of mind, knowing funds are allocated specifically for educational needs.
- Tax Advantages: Child education plans conform to tax exemptions as outlined in sections such as 80C with the possibilities of parents saving more while preparing for their child’s education.
- Protection Against Inflation: The cost of education rises with time. A good plan also assists in countering inflation because your rate of savings is in proportion to future needs.
- Disciplined Savings: Regular premium prompts parents to set small and recurring savings deposits that help them to ensure that they meet their fiscal objectives regularly.
Conclusion
Given the escalating education costs, it is critical to begin with the right proportion of child education plans, mutual funds, etc. At EduFund, we want to make it as smooth as possible for parents to handle this process. By using our College Cost Calculator as well as the
