Where and how much to invest to give your child the best education you can
The bad news is that education inflation is considered as highest inflation in our county and the Good News is that we have X number of years to achieve our Goal.
The cost of education is will keep climbing at an inflation rate of 10-11%. The course which cost you today Rs. 10 Lacs will likely cost around Rs. 29-30 lacs in 10 years. You can’t keep money in a saving account and wait for it to grow. In fact, you don’t have a choice but to invest in them. 8 out of 10 parents’ first financial goal is to fund higher education for their child and you are no different. Now the question is where to invest? and How much to Invest? Don’t worry, we will try to answer these in a subsequent part of this story.
How much funds you need to accumulate is the most difficult question in your mind as a parent. In the long run, it’s easy to accumulate the amount which is in your mind but how much you actually needed is difficult to answer. You may be planning something else for your child but what your child chooses eventually is most important which determines the exact amount you need to accumulate.
Having said that it’s difficult to figure out the exact amount, but this should not discourage you to plan for their future. The most important step is to start Accumulating so that in the end if there is a shortfall, it can be manger with a small loan.
| COURSE | Today (2023) | After 10 years | After 20 years |
|---|---|---|---|
| Medicine | Rs. 15 – 50 Lacs | Rs. 39 – 130 | Rs. 101 – 336 |
| Art, Commerce, Law | Rs. 2 – 10 Lacs | Rs. 5 – 26 | Rs. 13 – 67 |
| Management | Rs. 5 – 25 Lacs | Rs. 13 – 65 | Rs. 34 – 168 |
| Engineering | Rs. 5 – 15 Lacs | Rs. 13 – 39 | Rs. 34 – 101 |
| Sports | Rs. 5 – 50 Lacs | Rs. 13 – 130 | Rs. 34 – 336 |
We can understand that the above figures look scary, especially for those who are earning a modest income. But not to worry, we will make this equation simple for you. Let’s assume you are targeting a Medicine Course with an upper limit of say Rs. 50 lacs at current cost. This means after 20 years you required approximately 3.36 crore. So to accumulate the same you have 20 years i.e. 240 months in your hand.
Let’s see how much you need to Invest to get this Rs. 3.36 crore after 20 years
| Particular | Level SIP @ 12% | Level UP SIP @ 12% | Level SIP @ 15% | Level UP SIP @ 15% |
|---|---|---|---|---|
| Target Value | Rs. 3.36 Crore | Rs. 3.36 Crore | Rs. 3.36 Crore | Rs. 3.36 Crore |
| No. of Months | 240 | 240 | 240 | 240 |
| Return Expected | 12% p.a. | 12% p.a. | 15% p.a. | 15% p.a. |
| Monthly SIP | Rs. 33,965 | Rs. 21,199 | Rs. 22,441 | Rs. 14,628 |
| Assume a 10% increase in Base SIP every year | Assume 10% increase in Base SIP every year |
This is a most common question which every parent asks us, where to invest? Let’s look at options that are available for you to invest in your Mission.
This is the favorite product of every parent in India. The reason is obvious, the high trust factor and guaranteed return with Insurance coverage. On first impression, it looks perfect solution for your child but hold on. The major problem of this product is not beating inflation and the second problem is a sub-optimal return. To get Rs. 3.36 crore (as per the above example), we need to invest Rs. 72,721 per month which is double the investment amount.
Unit Linked Insurance products provide equity exposure but little complicated to understand. They are a little costly compared to other products. Switching to another product is also difficult. Though it has the capacity to beat inflation but inheritance nature of product design makes it difficult to beat the inflation.
They are regular Mutual Fund products with work Children attached to them. They are a mix of Fixed Income and Equity. They are locked for a minimum of 5 years and need to invest in the child’s name only.
This scheme is meant for Girl Children only. It’s better the above 3 options. It provides guaranteed TAX-FREE income with Tax Benefits. The scheme matures after 21 years and can be partially withdrawn after age 18 or completion of the 10th standard.
If your child’s education period is more than 5 years away then Equity Oriented Mutual Fund is the Right choice for you. From a long-term return point of view, nothing provides as much return as equity. Although equity is volatile
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