Let’s plan for Child’s Education as per age-group

India CSR Research Team

In 2018, students have to pay Rs 19.5 lakh for the two-year course at the Indian Institute of Management-Ahmedabad. Even the tuition fee in the undergraduate courses in IITs has been increased from Rs 90,000 to Rs 2 lakh/annum. This sharp rise in fees is a wakeup call for parents who are saving for higher education of their children. God forbid, if your child wants to pursue an engineering or MBA at a foreign university, the costs can be exorbitant.

Undoubtedly, educating a child is not a child’s game. While, as a parent, you can’t compromise on the education of your child, what you can do is—Devise the best child education plan for your kid. So, take a cue from the following list and plan for your child’s higher education as per the age-group.

What is the Solution?

• Age of the Child: 0-7 Years
• Available Time Horizon: 10-17 Years
• Good Investment Options:

1. Equities
2. Balanced and Debt funds
3. Fixed Income Instruments

As the time is on your side, invest more in equities to beat the education cost. Over a long duration, the volatility in returns would flatten out. In the past few years, equities have given over 12% annual returns, and therefore, you can invest more than 70% in equities. Considering how volatile this asset class, it is advised to participate in the markets via the mutual fund route. The remaining investment can be made in monthly income plans of mutual funds, PPF and Sukanaya Samriddhi (for girl child).

• Age of the Child: 8-12 years
• Available Time Horizon e: 5-9 years
• Investment Options:

1. Stocks and equities
2. Balanced and hybrid funds
3. Monthly income plans of mutual funds

At this stage, parents should open a recurring deposit that should mature around the same time when your child is ready to go to college. Though you can also open fixed deposit; you would have to pay tax if the interest received on fixed deposits is over Rs 10,000/annum.

• Age of the child: 13-16 years
• Available Time Horizon: 1-4 years

Investment Options:

1. Monthly income plans from mutual funds
2. Fixed income instruments like recurring deposits and short-term debt funds

For parents of teenaged kids, the emphasis should be more on the capital protection. As only a few years left, you can’t take the risk with the funds which you have accumulated for your kid’s higher studies. So, at this stage, your investments in equities should not be more than 20%. Also, divert your equity investment towards debts fund to curtail the market exposure.

Make A Systematic Investment In Equities

While we have given utmost importance to equities in all the above age-groups, it is best to invest in it through systematic investment plan (SIP). It is an investment tool which helps you invest systematically in small portions at regular intervals of time. Most of the investors try to time their entry into the market, and always run the risk of entering the market, when it is underperforming or staying out when it is overperforming. However, when you invest through SIP, you invest systematically and thus, you don’t need to time your entry into the market.

Equities can act as the best child education plan, which you can use to defeat the education cost in the long run. When the time is on your side, invest more in equities, but as you reach near to your goal, switch funds from equity to debt and protect your money from the market volatility.

Time Available	Investment in Equity
10-17 years	90%-100%
5-9 years	65%-80%
1-4 years	30%-40%

Start Early to Generate More Returns

You should start planning for your child’s education expenses as soon as you become the parent. The power of compounding needs time to show the magic. An investor starts early can generate high corpus than the one who delays the investment. Thanks to the power of compounding, you can fetch returns on the accumulated interest as well.

For instance, if you start investing Rs 10,000/month from the age of 30 when your child is ten-year-old, you would accumulate Rs 28 lakh (approx.) when your child turns 20, if the rate of return is 15%. However, if you start investing from the age of 35, you will accumulate only Rs 8.97 lakh, if the rate of return is same (as seen in the below image).

As a parent, whatever steps you take today will define your child’s tomorrow. So think wisely and give the best child education plan to your kid.

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