With the cost of higher education rising faster than inflation, many parents worry about how to save for funding their children’s future education. Every parent today is diverting a major part of their savings to the cause of child education fund. While some are doing it wisely, for some it is mere estimation. It is very important to plan this segment well as it puts a lot on stake. The first step shall be to set aside a specified sum for the purpose, for each child separately.
It is advisable to not to mix these funds with those that are invested for retirement or medical purposes. The education folio shall be managed independently as it shall give a clear idea as to how much has been saved and it will also prevent temptation to spend it elsewhere.
In order to fulfill your child’s aspirations, its better that you start taking some steps now. One good option is child ULIP, which encourages discipline in saving, which is highly needed for education savings. They may charge a little higher premium but they come with the advantage of offering cover even at the death of parents to secure the child’s future. It is important to note that parents should insist on the inclusion of mortality charges in the IRR.
Steps: How To Save Funds For Child Education
A very practical step-by-step approach for planning education-oriented investment is:-
1. First, estimate the year in which the child education fund would be needed.
2. Second, is to estimate the needed amount of funds that would be required in the date estimated in step one. This can be done by estimating the cost of education in today’s terms and accounting for inflation rates and predicting a rough figure. Many formulas are also available over the internet to help you arrive at such estimation.
3. Third, is to calculate risk appetite and gathering information on investment options that are suitable. In this step, parents should have a clear idea regarding the amount of risk they need to take to achieve their goal, in accordance to their earnings. If the salary pool is not huge, then risk to be taken may be high. Hence, it may be necessary to invest partly in debt and equity based plans. If the person is earning well and can afford to save a larger amount, even a low-yield traditional, guaranteed income plan shall be a good option.
Also, those who have a lesser risk appetite can choose Balanced Funds or Debt Funds and can
generate good amount of returns. Investors who are willing to take more risk can invest in
products like Equity Mutual funds, ETF’s, Direct Equities etc. and can get good returns. The golden rule in this regard is, a person who is investing for long-term (10 years and
beyond) should choose the Equity investments because ideally equity performs the best with
maximum returns and with small risk in at least ten years.
4. The last step is assessing the amount of monthly contribution that can be affordable. For such computation many formulas are available on the internet or a person can decide the amount after judging his personal spending and earning ratio.
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