How To Plan For Your Child’s Higher Educational Milestones?

Posted on Aug 4 2017 - 3:13pm by Editorial Staff

As a worried parent, you are desperately looking for the ‘answers’ to the cost of education which is increasing at an alarming rate. For instance, the fees of the management courses in India continue to increase by an average of 20% every year.

Undoubtedly, parenting brings along its share of happiness as well as responsibilities. Right from the early days of nurturing to providing the best education to shape up the future, there are several milestones in a child’s life that every parent goes through. To achieve some milestones, without hurdles, it is necessary that financial planning should be done from an early age.

Take a cue from the following guide that will help you plan for your child’s higher education needs as per the age-group –

#1 New Parents

  • Age of the child = 0-7 years
  • Time available= 10-17 years

What are the available investment options?

  • Stocks and equities
  • Fixed income instruments
  • Child ULIP insurance plans

In addition to the above major investment options, parents can also invest in PPF, monthly income plan, bank fixed deposits and Sukanya Samriddhi (for girl child).

What should parents do?

Now when thetime is on your side, invest most of your money in equity funds. Over a long period, the volatility in returns would be flattened out. Further, higher exposure to equities can also help in combating the education cost. Over the years, the National Stock Exchange Nifty has given annual returns of 12.5%, while the government bond has given nearly 9% returns only.

#2 Parents with pre-teen children

  • Age of the child= 8-12 years
  • Time available= 5-9 years

What are the available investment options?

  • Stocks and equities
  • Balanced and hybrid funds
  • Monthly income plans of mutual funds
  • Fixed income instruments
  • Child ULIP plans

What should parents do?

Parents should start a recurring deposit (RD) that should mature at the same time when your child is ready to go to a college. You can also invest in some tax-saving mutual funds via SIPs which not only grow your wealth but also help you save some tax. You can also purchase NSC certificates and open a fixed deposit account as well. However, remember, aninterest that you get in the final year on NSC will be taxable. Also, if the interest earned on fixed deposits is more than Rs 10,000/yearly, the tax is levied. Here again, you should invest in child ULIP plans which not only generate good returns for you, but the maturity amount is also tax-free.

#3 Parents with teenage children

  • Age of the child= 13-16 years
  • Time available= 1-4 years

What are the available investment options?

  • Monthly income plans of mutual funds
  • Fixed income instruments, such as recurring deposit, short-term debt fund options

What should parents do?

As barely a few years have been left, parents of teenage children should put more emphasis on the capital protection. So, at this stage, their contribution in equities should not be over 20%. Even if the investment has been made in equities, it is the time to switch the funds from equity to debt to protect it from market volatility.

Some Golden Tips

1 An early investment would help you earn huge corpus. For instance, if you invest Rs 10,000 every month, you will be able to generate Rs 44 lakh approximately after 17 years at a8% rate of return. However, a delay of 2 years means you would have only Rs 35 lakh approximately after 17 years at the same rate of returns.

2 Setting correct target dates for child investment plans is as important as choosing the correct investment amount. Otherwise, you may fall short of the funds and be forced to borrow money from family or friends.

3 When you have sufficient time, invest more in equities, however, as you reach near to your goal, switch your money from equity to debt to offset the market impact. Your investment in equities can follow the below trend=

Remaining Time Equity Investment (in %)
10-17 years 90-100
5-9 years 65-80
1-4 years 15-20

The Final Verdict

Irrespective of the age-group your child belongs to, it is essential to buy a child ULIP. Not only, it will grow your wealth and help you achieve your child’s educational goals, it will also protect your child’s dreams even when you are not around. It is the only plan available in the market which continues to offer coverage even after the death of the policyholder.

For instance, ICICI PruSmartKid offers financial security for your kid’s future even in your absence. In the case of sudden demise of the policyholder, the insurer pays the life cover which can be used to meet immediate expenses, like a child’s school fees, coaching fees, etc. The insurer waives off all the future premiums and continues to offer coverage till the maturity when the fund value is paid to the child.

Moreover, when you make an early investment in a child ULIP, you can make a premature withdrawal on the completion of five years for meeting any immediate needs of your child, like school fees, coaching fees, etc.

Remember, while making all the investment planning for your child, you are assuming that you will always be there for them. But what if something untoward happens to you and you’re not there ? A child ULIP plan can be your best answer to the life’s uncertainty.

About the Author
Editorial Staff

Editorial Staff at I2Mag is a team of subject experts led by Karan Chopra.