You look at her face- so innocent and pure as she sleeps in her crib- and feel your heart overflow with the desire to give her the best of what this world has to offer. This offering, however, won’t come without some serious forward-thinking and planning. And your newborn child- still so soft and vulnerable- deserves your invested planning and forethought, no?

Why education planning is the best kind of planning

It is no secret that educating your child is expensive. Private schools, colleges, and universities charge a boatload to teach kids, and with these institutions accessible to all, no one wants to settle for the second-best. When you plan, you don't have to settle for the second-best either.

Primary, secondary, and senior secondary education still doesn’t require much planning. The costs can be shouldered even on a tight budget. It’s higher/ tertiary education that causes deep stress lines to appear on the foreheads of parents.

And it isn’t without reason. The class of 2018 at IIM-A will pay 19.5 lakhs for the 2-year course. This is a straight-up 400% hike from what the institution charged in 2007. If the fees of management courses continue to rise by an average of 20% every year, you’ll be paying 95 lakhs in 2025.

Undergraduate courses haven’t been spared from the hikes either. If the average inflation rate is fixed at 10%, a 4-year engineering degree will cost 17 lakhs in another 8 years. Today, it costs about 8 lakhs and in 2030, it will cost more than 30 lakhs.

According to the HSBC Value of Education Survey 2017, long-term goals are given top priority by parents, with 44% regarding education as the most important financial commitment. However, only about one in four parents is actually preparing for the child’s career, according to the Aviva Early Starters Survey 2016. According to another study by Aviva Life, Indians are great dreams but poor planners. 81% do not even know what the cost of higher education will be.

“People typically don’t understand the financial implications of having a baby and nobody tells them either,” says Vyakaranam. This is where Aviva comes in. In this article, we will take you through the entire gamut of financial planning associated with your child’s future and hope it helps to erase the stress lines caused due to education finances.

How to get planning

The number 1 rule is to start as early as possible. You can’t know which stream or subject your child will eventually choose, but irrespective of that, you can start investing. If you would like to get an idea of where your child is leaning- as early on as possible- you can take the help of the Aviva Kid-o-scope.

Now, the benefits of early child investment plans are numerous especially for a long-term goal like education. When you start early, you can amass large amounts with little but consistent savings.

For example, if you start saving when your child is 3 years old, a monthly investment of INR 5,000 is required for the next 15 years if you want a corpus amount of INR 25 lakhs. But if you start when the child is 6 years old, not only will you have a shorter time frame (assuming you want to dip into these savings when the child is 18 years old), you will have to save INR 7,835 per month to accumulate the same amount. At 9 years, the amount touches INR 9,195 lakhs. And it just keeps on increasing thereof.

Hence, when you start early, you can start small without shaking your entire budget. You also have the scope to take risks and to actually end up with more than the intended amount if your income keeps on increasing and you can add more to the education fund.

Now, let's begin:

Have a target amount

Think of a few options which you would like the child to pursue and others that he might if he has a particularly potent creative streak. See the current costs of these courses. Then factor in annual inflation at the rate of 8% for the number of years after which the child would need the money.

Once you’ve determined your requirements, find out the monthly and annual investment needed.

Invest in a varied portfolio

Create separate investment buckets for short, medium, and long term needs. Have regular savings in each of these categories.

For long term needs like education, equities are the best. It’s been discovered that they deliver the highest inflation-adjusted return out of gold, real estate, or debt.

Go for equity-based investments like equity mutual funds, ULIPS with equity fund options. An additional Public Provident Fund (PPF) can also be used for funding. For a newborn or 2-year old, 90% of your investments should be in equity.

Get some Mutual Funds

Begin SIPs in 2-4 equity-oriented mutual fund schemes. Have a mix of large-cap and mid-cap funds. Keep adding any money received by children on birthdays, festivals, or any other occasion.

Another option is to go for equity-linked saving schemes that save for childrens’ needs and also save tax.

Go for ULIPs

Short for unit-linked insurance plans, ULIPs are market-linked plans which allow one to invest in debt and equities. Choose the equity fund option of child ULIP to get maximum benefits out of this option.

Be in it for the long haul since ULIPs are front-loaded and give benefits in the long-term.

Get a PPF

You can also open a PPF in the child’s name which can help to create a good enough corpus for the child. It is a 15-year scheme so starting when the child is 3 years old would be beneficial. Once started, it can be extended indefinitely.

PPF is a debt-investment, though, and inflation-adjusted return would be lower. Funds can be withdrawn anytime after the 6th year ends. Once the child matures and can contribute to his/ her own savings, he/ she can add to the PPF themselves, too. The amount limit for the combined parents and children PPF account is 1.5 LPA.

Plan for your absence

This is in case something unfortunate were to happen and you would no longer be there to provide for the child. You can either go for a term insurance plan that comes at a low premium but offers no maturity benefit. Or go for a permanent life insurance plan at a slightly higher premium but with both death and maturity benefit.

A final note: no matter what, do not get derailed from your intended course. Do not use your child’s education funds for anything other than what you are collecting them for.

The best investment you can make for your child’s future is to invest in their education. When they have the gift of knowledge, they are capable of going out and achieving whatever they want. So, prepare to gift this gift to them as early as possible. Have a look our Child Investment Plans to see which one is the right fit for you.

AN Sep 27/19

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