Maitry Shah, the founder of LakshMe, the CSR initiative of the Prudent Group
We can use the following components for child’s education:
1. SIP in mutual funds and step up SIP.
> Stepping up SIPs enables investors to increase their investment amount gradually, thereby accelerating wealth creation and achieving financial goals in a planned manner.
> Stepping up SIPs helps in averaging the cost of investment, reducing the impact of market volatility and generating higher returns over the long-term.
> By gradually increasing the investment amount, investors can stay invested for the long-term, avoid the temptation to time the market, and benefit from the growth potential of the stock market.
Stepping up SIPs have a few disadvantages though, including higher cost, market risks, limited flexibility, and no guarantee of returns.
2. Sukanya Samriddhi Yojana – Sukanya Samriddhi Yojana is a government-backed savings scheme launched as part of the “Beti Bachao, Beti Padhao” campaign. It aims to promote the welfare of the girl child and encourage parents to save for their daughter’s future education and marriage expenses.
Advantages:
> SSY offers a high-interest rate, which is currently 8% per annum (as of April 2023), making it an attractive investment option for parents looking to generate a secure and stable return on their investment.
> Investments made in SSY are eligible for tax deductions under Section 80C of the Income Tax Act, 1961, up to a maximum of ₹1.5 lakhs per annum. Additionally, the interest earned and maturity amount are tax-free, making SSY a tax-efficient investment option.
> Parents can make flexible contributions to SSY, with a minimum investment of ₹250 per annum and a maximum of ₹1.5 lakhs per annum.
While Sukanya Samriddhi Yojana has several advantages, parents should also consider its disadvantages before making any investment decisions. The scheme’s long lock-in period, limited coverage, limited investment amount, inflation risk, and no liquidity options can impact the flexibility and return potential.
Aniruddha Bose, Chief Business Officer, FinEdge
Mutual Funds offer a variety of products and solutions that could enable you to build a large enough corpus for your child’s education. You can run a long-term SIP Investment of Rs. 50,000 in an aggressive mutual fund (such as a small cap, mid cap or multi cap fund) during the initial years of your planning, and de-risk the corpus systematically using Systematic Transfer Plans a year or two prior to the goal date.
In comparison to mutual funds, traditional “child education plans” offered by life insurance providers as a packaged solution are low return, opaque, and usually don’t even beat inflation. A qualified advisor can help you with the best solutions to help build a corpus for your child’s education, after prioritizing your various financial goals.
Nirav Karkera, Head of Research, Fisdom
To plan for a child’s education expenses, it is crucial to determine the target amount required and the time horizon for when such funds will be needed. As education inflation is expected to remain high for an extended period, it is recommended to start investing towards this goal as early as possible. Investing at least seven to ten years in advance allows for an aggressive allocation towards equities.
For an investment horizon of more than ten years, an equity portfolio focusing on high-quality midcaps should efficiently achieve the investment goals. As the investment approaches the target, with three years or less remaining, the portfolio should be de-risked by gradually shifting towards less volatile fixed-income alternatives.
Investors with a higher risk appetite may explore pure market cap categories such as largecap and midcap funds to create a portfolio. For those who prefer not to decide on market cap strategies, select flexicap and multicap funds offer a strong promise. For investors with a medium-term horizon of five to seven years, dynamic asset allocation funds and multi-asset funds could provide attractive risk-adjusted returns over the period.
CA Manas Chugh, expert in Investment and Taxation, Osgan Consultants
There are different mutual funds specifically designed for saving for education which the investor can look into. The options depend on the risk appetite of the person. Equity Mutual Fund is considered the best option for long term growth as it has the potential to give better rate of return. If an individual wants a balanced risk, the investor can buy balanced mutual funds or fixed income securities.
For the Girl Child, Sukanya Samriddhi Yojana (SSY) is the most favoured option as it is Government backed and provides an interest rate of 8% but with a lock in period of 21 years.
Mr. Manu Rishi Guptha, Founder of MRG Capital, a SEBI registered Portfolio Management Company
Planning for child’s education needs some discipline as it is an unavoidable expense which is predictable to some extent and with a definite time frame of investment. A corporate bond investment in a good rated company which earns that extra return over a fixed bank deposit can be considered. The timing of maturity of the corporate bond can be closely matched with that of requirement of funds for the child’s education.
Making a monthly SIP of 50,000 for the same becomes trickier as the same bond might not be available every month and also might not offer the same yield. So, it is ideal to start with a mix of equity and debt (or SIP in a Hybrid mutual fund) for few years and then make a lumpsum investment in a corporate bond to achieve the goal. The period of investment in the hybrid fund can be extended/reduced as per the returns available and the availability of the corporate bond which offer the required redemption amount.
Dr. Babli Dhiman, Professor-Finance Mittal School of Business Lovely Professional University
Investment in a child’s education depends upon the domain area and institution’s fee. If the estimated cost of education will be more than 1 crore, then Rs.50,000 can be invested in TATA AIA child education plan like Fortune Pro-WOP, Capital Guarantee Solution etc. Whereas, if the education cost is less than 1 crore then Max Life, SBI and Bajaj Allianz, HDFC etc. child education plans can fulfil your child’s education financial needs.
All education plans are available in a multiple of Rs.10,000 as an investment and give a return from 8%-21% with a lumpsum payout. The lock-in period for investment is a minimum of 10 years. You can start a child education plan from nursery grade so that an ample amount can be earned till the time your child completes his 10th standard. It is also very important to add the increasing inflation trend while choosing an investment plan for your child.
Pratik Vaidya, MD & CVO, Karma Global, a tech-enabled HR & Compliance Organisation
This kind of planning needs to be done out of love and considerable thinking on both the approach and the strategy to invest as your child’s future stakes are involved.
It just cannot be that one fine morning you get up and decide to secure your child’s future and higher education and get into this with some ad hoc planning.
In fact, I know of many parents who have growing children, and decide to build their future education nest but are on the horns of a dilemma as to how they should invest and what investment avenues they should use. I have known of some desperate cases going awry due to ignorance or wrong advise. There are over 25 education plans in the market today each talking loudly that what they offer is the best.
My advise is that always keep two factors in mind , one is identifying and estimating different time horizons after taking into account the inflation. For example, a two year MBA course which may today cost 20.00 lakhs , may cost 50.00 lakhs after 10 years.
It is always good to start by building a portfolio with appropriate asset allocation (AAA) capable of ensuring growth and safety of investments within the confinements of age and goal horizons .
I would strongly recommend that you put the eggs in 3 different baskets rather than in one basket, it may be that sometimes the one big basket may do very well and give you good returns but if the basket stops to grow outwardly, you will face with disappointment. However, in 3 different baskets, there will always be growth in the other two should one fail.
The 3 investment products that I would recommend in different combinations are:
(1) Public Provident Fund (PPF)
(2) Equity Mutual Funds and
(3)Sukanya Samriddhi Yojana (SSY) offered by Indian Government and eligible for tax rebate.
However, if you a conservative investor, then the best bet for you will be (1) Equity Funds (2) Voluntary Provident Fund (3) Public Provident Fund (4) Employees Provident Fund. Again in Equity Fund, it is advisable to choose from 2 large cap index funds, 1 flexi cap fund and 1 large and mid cap fund.
Another safe option will be to keep in mutual funds, fixed deposits and public provident fund.
But please keep this underlying principle in mind, always reassess your risk profile for risk appetite and if need be at times, do consult a financial planner if you think your investments are going out of track, so that remedial steps can be taken at the right time.
It is true that only small savings may not be enough but you need to take bigger plunge to meet your child’s aspirations in keeping with the market pace with multi investment approach.
Pranit Arora, Co-Founder and CEO, Univest
Investing in your child’s education is not only a smart financial move, but a necessity and there are several investment options to consider to grow your savings over time. One option is equity mutual funds, which historically have delivered higher returns than other asset classes over the long term. Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme designed for the education and marriage expenses of a girl child.
Education savings plans are specialized plans offered by some mutual fund houses and insurance companies to cater to education expenses. Consulting a qualified financial advisor is advisable to understand your financial goals, risk tolerance, and investment horizon, and choose investment options that align with your specific requirements. It’s also important to regularly review and rebalance your investment portfolio to ensure it remains aligned with your child’s education goals and overall financial plan.
Mrs. Meenakshi Sharma, Assistant Director – PR, KL Deemed to be University
Education is key for children’s holistic development in India, as it is essential for their physical, mental, emotional, and social development. Education encourages children to be self-sufficient, to take responsibility, and to be contributing members of society. As a result, it is critical for any parent to select where and how to invest money in their child’s education and development.
Aside from academics, parents should encourage their children to improve their skills in other areas as well. There are numerous affordable courses accessible in institutes for co-curricular activities where parents can invest ₹50,000 monthly and these activities could be sports education, music, foreign language, programming, swimming, and so on.