How to save and invest for your child’s education
The cost of an undergraduate course,even in government institutions and universities, has been hiked by a high percentage. Overseas education demonstrates a comparable inflation as tuition fees for most universities increases every twelve months by 10 to 15 per cent, which can translate from INR 15 to 50 Lakhs per year.Talking about overseas education, an Indian student spends about INR 20 Lakhsevery year only on tuition fees and accommodation facilities, which is liable to increase according to the lifestyle of the student. Furthermore, the annual fee is bound to increase and day-to-day expenditure will increase beyond comparison.
So everything comes at halt at the big question: Do you think you are saving enough? When is the right time to start saving for your child’s education? What is the right channels of investment that guarantee higher returns with low risk factor?
Tax-free bonds, Public Provident Fund (PPF) or even a few of the Child Plans offered by reliable insurance companies could be an additional saving option. For example, investing in PPF is a great option seeing that it provides compounded interest where it locks the amount invested for 15 years. Investing in endowment plans with great returns could as well be education saving plan as it gives you guaranteed returns when the maturity of the policy tenure with the additional perkof choosing your own time period for it to mature.
Ideas of Investment –
- Short-term investment plans
What if the time available to save is just about one to five years? It would be sensible to opt for fixed income investments like debt funds, frequent deposits and even Monthly Income Plans (MIPs). Depending on the money you invest, you can save up to INR 20 Lakhs in just five years. Also, do consider the high risk, high return short-term investments such as Shares or Equity Mutual Funds (MFs) and aim close to 15 to 20 per cent returns. Moreover, allot to the high risk/return asset class such as liquid-plus fund, short-term debt mutual fund or bank fixed deposit (FD). That, surely, is a safe and smart decision investing up to 25 per cent in equities and the balance in fixed income instruments.
- Tax benefits and deductions
All saving options mentioned above can give you tax benefits as well. According to Section 80E of the Income Tax Act, 1961, the interest paid on an education loan can be claimed as a deduction. In addition, Section 80C offers a deduction of up to INR 1.5 Lakhs spent on children’s tuition fees.
- Education loans
So what happens when parents have not saved for an education abroad but the child decides to go abroad for a degree after his/her secondary education? Even though the sumrequired to fund studies in a foreign land is frightening, there are severalnationalized and private banks in India that offer loans to students for an education overseas.
Apart from loans, the brighter lot of students who are rewarded with good grades can always apply for various international scholarships for meritorious students such as the Fulbright Scholarship, Rhodes scholarship, Chevening Scholarship, Endeavour scholarship or the Commonwealth Scholarship for Developing Commonwealth Countries. There is also the TATA Memorial scholarship and MHRD scholarship specific to the Indian students, not to forget multiple other scholarships that are specific to a particular country or a university.
More than investing consistently for your child’s education, be relentlessly updated with the cost of living as well as the education fees and keep regulating your investment in view of that. With a well-planned savings approach, you should be able to take care of the inflation in education fees at any time in an unforeseen future.