How Lack Of Planning Could Hamper Your Child’s Education Plan
From the time your child is born, as a parent, you provide the very best for him/her. This certainly includes your child's education.
Although it is not certain what your child will choose as a career, it is clear that you will need to invest wisely. You may be aware that you are bound to provide a large amount of money for your child's education, but you may find it difficult to predict how much you would actually need.
Let's be honest, in recent times, the cost of education has sky-rocketed. Hence, it has become mandatory to have timely and disciplined savings.
One must always remember that such long term goals cannot be achieved without a meticulous thought process, research, discussion, and analysis. Some of the questions that most parents face are:
What is the minimum tuition fee that you can expect?
Recent trends have shown a steady escalation of almost 40% in the cost of tuition in 10 years. And if your child aspires to pursue a career in engineering or in the medical field, their tuition fee is even higher. If you look at the current scenario too, coaching institutes charge anywhere between Rs. 80,000 - 1, 00,000 per year to prepare your child for an entrance exam. (Source: Economic Times)
What is the right time to plan your child's education?
Let’s just say, the earlier, the better! The advantages of an early start cannot be stressed enough. If you have a long term goal in mind and you begin when your child is 3-4 years old, you have the early advantage of a good 13-14 years to save. Moreover, starting early will help you to amass more wealth due to the compounding effect. Basically, longer time horizons have a higher multiplier effect due to the compounding effect. Hence, you will gather enough funds to provide for your child’s education, which in today’s times are becoming more demanding in terms of degrees and experience.
But there are other traditional investments also?
Of course, there are other options such as fixed deposits, land or gold investments, that people rely on, considering they are the traditional sources of savings. What must be kept in mind is that while investing in these, there is a possibility of erosion of money due to fluctuations in tax and inflation, in which the increase in the rate of interest is not in sync with the rate at which inflation increases, thereby depriving you of an effective increase in wealth.
So what can be considered a good alternative?
A great investment plan that could cover your child’s future cost of education is mutual funds, which have gained immense popularity over the last decade and even has facts and figures to substantiate this claim. If you invest in mutual funds, which pools money from small investors and invests it in stocks, you could enjoy tax-free profitable returns in the next 8-10 years. This is not the only type of situation where mutual fund investments deliver better outcomes than many popular investments. Mutual funds are based on your risk appetite and offer plans linked to the stock market or debt instruments which are safer.
Mutual funds offer you short-term, medium-term and long-term investment options, which means that you can find a plan which suits you. So let’s say that you are trying to raise money for your child's primary education. Here a short-term mutual fund investment is a good choice. If it’s for middle-school, then medium-term plans will benefit you and if you want to fund your child's higher education, a long-term mutual fund plan can be your best bet. You are the best judge about the timeline you wish to set for a financial goal, and most importantly must remember early investment and long term benefit.
To be better prepared for the future, you can now estimate the amount of money you need to save up based on your capacity to put aside some money on a monthly or annual basis using this link.
Mutual Funds ensure that inflation in education expenses isn’t the reason your child is deprived of his/her educational goals!! So, prepare to give your child the education that they deserve!
Disclaimer: An Investor Education Initiative.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.