INVEST IN YOUR CHILD’S FUTURE

With every passing year, the cost of education is growing by leaps and bounds. So, take control and invest right to give your child the very best.

For girls, the Centre’s Sukanya Samriddhi scheme provides 8.6 per cent annually. At the current rate, investments of Rs 1.5 lakh every year become Rs 65 lakh in 18 years For boys, parents can invest in Public Providend Fund. At present, it gives 8.1 per cent returns Invest in equity MFs for 10 years or more. It will give returns of 10- 12 per cent. The proceeds are tax- free Debt provides both stability and liquidity. Invest fi xed amounts every month in PPF, and equity and debt mutual funds If you are planning for overseas courses, invest a part of your savings in dollardenominated assets, such as international MF schemes through Indian feeder funds

P arents, the world over, willingly shun luxuries to pay for a good education for their children. And with the cost of education growing at a fast clip it only adds to their woes, but that can never be an excuse to give up on it. Says Suresh Sadagopan, Founder, Ladder7 Financial Advisories: “Children’s education is a costly affair today. It makes sense to start early. Also, it pays to be pragmatic. Parents may get sucked into funding more and more ambitious and costly education that can jeopardise their fi nances. It makes sense to be realistic and prudent, and ensure the funding is only up to a certain level. If education costs go above that level, one should consider loans and self- funding by the student ( for post graduation and higher courses).” However, the most diffi cult part of the long journey lies in picking the right products to invest in. So, here’s the lowdown on how to give wings to your child’s dreams. THE STRATEGY The first and most important step towards building an education corpus is to have a definitive goal – the educational qualification one seeks to achieve and the cost it involves to get there – before making a realistic assessment of how much one can afford to save every month over and above your other expenses. Says Ajit Narasimhan, Category Head, Savings and Investments, BankBazaar.com: “Proper planning and investment can help you save for your children’s education. However, remember that it does not all have to be your burden alone. There are education loans to help you out. So make sure you don’t cut corners on saving up for other life events, including your own retirement and medical expenses.” If you are not realistic with your targets, the entire plan might fall through despite all your efforts. Says Tanwir Alam, MD, Fincart: “One must start investing through SIPs from the month the child is born, because the longer the time horizon the more effective is the power of compounding – it really does not work if it is less than five years.” As your goal approaches, reduce risk by cutting down your equity exposure because if the market were to tank, funding the goal might become a challenge. INFLATION COUNTS Fees at the Indian Institutes of Technology (IITs) and Indian Institutes of Management (IIMs), for instance, increase every four to six years. But inflation contributes significantly to the rising cost as it goes up steadily year after year. Says Anil Rego, CEO and founder, Right Horizons: “Some of the very best professional institutions are not very expensive, compared to average colleges, as they are often able to provide scholarships and on-campus jobs to the brightest, enabling them to pay for their education. The hike seems to be coming from inflation when considered over a period of a few years.” Cost of private education even at the school level, however, is high and the costs often rise faster than inflation. Therefore, saving for educational goals must be planned and executed based on the time to the expense. “The amount likely to be required must be adjusted

for inflation. Education that costs Rs 10 lakh, today, will be about Rs 32 lakh after 15 years with an inflation rate of 8 per cent, or Rs 42 lakh at 10 per cent. It is better to be safe and consider inflation at 10 per cent, because good education costs grow at above normal rates of inflation. For foreign degrees the requirement could be greater if the rupee depreciates 4-5 per cent during the same period, considering its pastperformance,” says Rego. One should always consider the risk and time horizon before investing. Depending on the requirement, the products could be chosen between debt and equity. Consistent investment and patience are essential to building the required corpus for the child’s future. “While planning for children’s education, conventional investment choices such as fixed deposits and life insurances may not be the best options. One has to look at growth assets such as balanced funds, equity funds or direct stocks. However, for the common man who has a full-time job, it would be advisable to take the mutual fund route,” says Alam. INVESTMENT OPTIONS If the education fund is required within, say, five years, debt schemes of mutual funds are ideal. They are liquid and are likely to provide inflation-beating returns. For the long-term, a portfolio could be created with a combination of suitable investments. Says Lovaii Navlakhi, founder and CEO, International Money Matters: “The key to achieving this goal is to start as early as possible and have the discipline to keep those funds untouched till the goal is achieved. If overseas education is planned, invest in products which could provide a hedge against the currency. If the period over which the investment is being made is over five years, you can invest the funds in equity or equity funds – reduce the entry risks by staggering the investments.” Sadagopan agrees: “PPF is a good instrument if you start early and do it consistently. Mutual funds are a good way of investing small amounts. Also, MFs allow one to invest regularly in equity assets, which are desirable for getting real, inflation-adjusted returns.”

The biggest investment is also to teach your children to save right and inculcate the habit of saving from their childhood. As they grow older, explain the basics of financial planning and involve them in the planning process. Take guidance of a certified financial planner, if necessary, to ease your way to the education fund you desire for your child’s better and secure future.