Child Education Plan: The cost of education in India is increasing continuously. The continuous increase in the cost of higher education and other related costs is becoming a cause of concern for the parents. Keeping this in mind, it is important for parents to start investing early, even if the investment starts with a small amount. Many parents invest in gold or buy real estate for their child’s future. But it should be ensured that that asset can be liquidated and put to use in due course of time. A substantial amount of the portfolio should be in liquid asset form. Before deciding where to invest for your child’s education and how to proceed with the investment, it is important to keep a few things in mind.
calculate cost of education
Even if rough estimates are made, the inflation rate in education is around 10-12 per cent. If inflation is estimated to be around 6%, then an MBA course currently costing Rs 12 lakh would cost around Rs 37 lakh after 21 years. Similarly an engineering course, which currently costs Rs 6-7 lakh, can reach Rs 15-16 lakh after 16 years. Keeping this in mind, parents should have a clear financial goal and invest on that basis. You can invest in these options keeping in mind the education of your child.
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Public Provident Fund (PPF)
It is one of the long term investment options. It offers attractive interest rates and returns on the amount invested. The current interest rate in PPF is 7.1% compounded annually. In this, you can invest 1 lakh rupees annually and in about 15 years you will get an amount of about 31 lakh rupees. It is one of the safest investment options as it is a scheme run by the government. Its lock-in period is 15 years. This account allows investment of a minimum of Rs 500 and a maximum of Rs 1.5 lakh for each financial year.
Sukanya Samriddhi Yojana
This scheme was launched by the government in the year 2014. This scheme is for daughters below 10 years of age. The minimum amount to invest in this scheme is Rs 1,000 and the maximum is Rs 1.5 lakh in a year. Its current interest rate is 7.6% compounded annually. The repayment period is 15 years while the maturity period of the account is 21 years.
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mutual fund
You can also start investing in mutual funds keeping your child’s future in mind. In Mutual Funds you can invest in different asset classes and it is managed by experts. Investing in equity funds is considered better for the long term. In this, you can invest in large cap, multi cap, mid cap or small cap depending on your risk appetite. Hybrid funds investing in both equity and fixed income are considered better for the purpose of child’s education.
In this, if you want to withdraw your money at any point of time, then you can switch to debt funds so that the required amount is not affected by market fluctuations at the required time. You can also start a Systematic Investment Plan with Rs.500. With Systematic Investment Plan, you can invest a fixed amount at regular intervals and thus generate a huge corpus.
Keep in mind that even in case of emergency, you should not use the child’s education amount. You can buy an insurance plan for any kind of medical emergency, so that there is no need to use the child’s education money when the money is needed.
(The author Ritu Wadhwa is an assistant professor at Amity Business School.)
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