The Buyt Desk
As your child starts schooling you start planning for her/his higher education too. You realize how the cost of education has increased over the years and you don’t want to leave any stone unturned when it comes to her/his higher education. So, what is the foolproof plan to ensure you and your child get what you both aspired for when she/he is ready?
The cost of higher education has increased tremendously in the last few decades. It has risen more than food, fuel and medicine. Its average inflation rate is 10%-12% per year. Therefore, it becomes prudent for you to get worried about your child’s higher education before it’s too late. If you start investing at the right time, in the right plan with the appropriate amount, you can secure your child’s higher education fund before they are ready to fly.
Best Investment Avenues to Support the Education of a Child
Children-Focused Insurance Policy – Children-focused insurance policies are one of the preferred ways to secure funds for higher education as well as protect the child incase of any eventuality. If the parent meets with an untimely demise this plan can help in covering the expense of the education. They give bonuses and sometimes even a return on the investments too.
Additionally, unlike the usual investment plan, the children-focused policy becomes a hedge for children in difficulty. Waiving off premium if something happens to the premium depositor and paying the sum accumulated are a few of them.
Equity Mutual Fund – If you have an appetite to take risks, an equity mutual fund could be an option you can rely on. It gives a better return than children-focused policies and thus has the potential to beat inflation in the education sector. The average annual return mutual fund has offered till 2022 in several broad categories is 11.54%. However, before investing in a mutual fund, do check its nitty-gritty. It is crucial.
Public Provident Fund – PPF is a traditional but the most effective way to accumulate funds to support child education. It is one of the most favoured options among investors.It has government backing, offers steady, decent returns and is tax efficient. PPF accounts are easy to open at the post office and banks. But do remember that it has a long lock-in period of 15 years.
Invest in Sovereign Gold Bond (SGB) – Gold has been a consistent performer in offering returns. Because buying and keeping solid gold is risky these days, SGB is a safer way to invest in gold. It offers an interest of 2.5% pa on face value with capital appreciation. With SGB you lock your money for a long term i.e. 7 years though you could sell it in the secondary market after the fifth year. SGBs come with the benefit of capital gains exemption if held till maturity.
Recurring Deposit – If you do not have a lump sum amount, you cannot invest in a policy or FD. In this situation, RD is a solution. A regular deposit of a small amount will help you build a corpus. It is also a way to get a contingency fund. An RD of Rs 2,000/month for five years at an average interest rate of 6% can help you accumulate Rs. 1,40,128. Or you can open a recurring deposit for one year to build a corpus for FD or another investment that offers a higher return.
Things to Remember
Be critical while selecting an option to build a corpus for your child’s higher education. Invest in plans that can beat inflation in the sector yet offer security. For that, it is better not to rely on one investment avenue. You can choose two or more plans to get a better return and avoid financial stress.
Make small goals and try to achieve them step by step. Most importantly, start as early as possible. If you start early, you will get better results.
