In the face of rising higher education costs, planning your child's higher education seems more important than ever. In India, getting a degree can go up from Rs 15-40 lakhs depending on the course and institute. And in the midst of increasing inflation, this cost is mounting. Beginning early and making wise decisions will enable you to amass a significant education fund. Here is a step-by-step guide:
1. Start Early for Bigger Gains
The longer you save, the more investment time will work to your advantage. Suppose that Mr X's family had started investing Rs 7,000 per month in an equity mutual fund when the child was 5 years old. Over 15 years, assuming a 12 per cent return, they had nearly Rs 35 lakhs through compounding. Even a small corpus invested consistently over a long period of time can work wonders.
2. Account for Inflation
Education costs in India increase at 8-10 per cent per annum. A degree for which you pay Rs 15 lakhs today may cost Rs 30-40 lakhs in 15 years. You may use online calculators to estimate future expenses and create realistic savings goals. This will ensure that inflated costs don't catch you off guard when your child is ready to enrol.
3. Choose Suitable Investment Options
Considering your individual risk capacity and risk appetite, choosing an appropriate investment route is very important. So here are some popular routes among Indian parents:
Equity Mutual Funds: It can be considered a suitable investment option for long-term goals (7 years or more) as it gives high returns that could help one counter inflation.
Public Provident Fund (PPF): It is a low risk with tax benefits, returns are tax-free and are preferred by conservative investors.
Sukanya Samridhhi Yojana (SSY): Applicable for female children, maximizes the return, coupled with section 80C benefit.
Fixed Deposits (FDs): Safe but less effective against inflation; suitable for short-term needs.
Gold ETFs: A hedge against market volatility and a diversification tool.
Education Savings Plans: Unit Linked Insurance Plans provide a mix of insurance and investment benefits.
4. Diversify Your Portfolio
Relying on one type of investment is risky. A balanced portfolio with high-growth assets like mutual funds and stable options like PPF ensures steady progress toward your goal, even in volatile markets.
5. Take Advantage of Tax Benefits
Certain investment options are eligible for deductions under Section 80C, such as PPF and SSY. Interest from education loans is also eligible for tax under Section 80E. This saves pressure on the pocket.
6. Review Your Plan Periodically
Life situations change and so do market conditions. You must evaluate your investments every year to be on course, leading to the adjustment of your contribution and switching funds as and when required to remain in line with the target.
7. Consider Education Loans as a Contingency
While the focus should be on savings, loans will come into play when there is an unexpected shortfall in case. When it comes to education loans, one gets tax benefits, which in turn makes them a good fallback.
An education fund requires planning that begins early, consistent efforts, and judicious choices. It requires starting small; diversifying wisely; and reviewing regularly. This way, at the right time, your child will not lack financial support to do whatever one aspires for.
