When easy steps to start planning for your child’s higher education

Bear in mind that inflation will increase the cost of education when your child reaches the age for higher education. In India, the general inflation rate is around 7% currently, and the education sector is one of the most affected. A few years back, the cost of education for the degrees mentioned above was almost half of what it is now, so you can estimate what colleges will charge a few years from now. That said, you can give the best possible education to your child without thinking or worrying about the finances if you start with a proper plan. To plan for your child’s  you need to align your investments with the child’s current age. For instance, if your child is a newborn you want to start investing now, then you have at least 16-18 years to prepare. When you have such a long duration, you can invest in equity funds, stocks, or Unit-linked insurance plans. All these investments are equity-oriented and can generate higher returns when you stay invested with a long-term horizon. So, if you start with a monthly investment of Rs 5,000 today, and you choose an equity fund that offers around 14% return on an average p.a., then in 15 years you can accumulate around Rs 30 lakh, while your investment would only be Rs 9 lakh. When your child is just a toddler, you can take a risk and invest in equity funds. However, if you are starting investments when the child has attained the age of say 9 or 10, then you will have only 7-8 years left in hand to accumulate the funds. While you need to accumulate the same corpus within a shorter period, you cannot take on more risk. You have to invest more, around Rs 10,000 or a little more per month, and diversify your investments into both equity and debt instruments. You can choose balanced funds, which will have both debt and equities. If you start investing when the child has grown and has only 2-3 years left for higher education, you have to invest around Rs 50,000 a month in debt funds or fixed deposits, recurring deposits, treasury bonds and other debt instruments, so that you can accumulate the sum you require within 2-3 years. From the above examples, it is clear that if you start early, you can accumulate more with a lower investment, whereas if you start later, your investment has to go up while your returns will be low. Thus, there is no perfect age to start investing in your child’s education the earlier you start, the better for your child. How much you should invest will depend on the tenure for which you can stay invested, and how much of a corpus you would need. The earlier you start, the lower you have to invest. If you are investing in mutual funds, then check their 10-year and long-term returns, if you are investing in debt funds, check their ratings and returns. If you are investing in insurance policies designed for a child’s education, see the sum assured, as well as terms and conditions. If you are investing in stocks,  the fundamentals. Once you are sure about the investment vehicle/ instrument, you need to decide whether you want to invest in one go or periodically. An SIP is preferable. Then comes the most important part, which many parents miss out on. After making the investment, or setting up the SIP, your job is not fully done; you need to review and monitor your investments from time to time to see if they are generating returns per your anticipation. If not, then you need to reallocate assets or rebalance your portfolio.