Tarting early, having clear goals and dedicated savings are the three key factors that can help parents plan for their children’s education needs. With school and college fees and other education- related expenditure only set to further increase in the coming years, financial planners are suggesting that parents need to earmark a specific amount for the purpose and join child education policies or endowments to address the funding requirements for kids’ education.
With most of the insurance players offering policies in this segment and more to come, financial analysts say there are a number of choices available for parents today. “Investing for children’s education has to be long-term and goal-based.
The goals would be spread out over a number of years and may change with time. One has to structure investments well to meet these goals as and when they come around. For instance, a parent would want funds in hand around the time a child passes out of school and starts college, and again when the child goes for higher studies or abroad. All these need to be part of a longterm plan. Even while the child is in school, parents may want to plan for a boarding school or support their co-curricular activities. Parents need to plan and invest for these in the midto- short term,” said Subba Rao Anupindi, senior chartered accountant from Hyderabad. What are the investments options available for parents, once they have set their goals? Once the goals are clear, parents should look for the best investment opportunities available, says Adhil Shetty, CEO, Bank- Bazaar.com.
He adds that parents should keep inflation in mind when they decide on corpus and plan. “While an inflation rate of 6 to 7 per cent works in most cases, keeping in view increasing education cost, it would be wise to consider a higher inflation rate of 8-10 per cent,” he says. According to him, equity funds help tide over short-term market fluctuations and also beat inflation over the long term. “A SIP in a diversified equity fund will be best suited to meet the financial goals for children. For the less risk averse, one can look at balanced funds that provide lower returns and less risky. If parents are looking at options other than mutual funds, they can opt for a 15-year Public Provident Fund (PPF) to build a corpus for their child’s education. The current interest rate of interest is 7.6 per cent.
Apart from this, there is the Sukanya Samridhi Scheme for the girl child,” said Shetty. While there are many policies and plans available in the market, parents need to choose the right one that fits them, keeping in view their financial position, says Sunil Sharma, Appointed Actuary and Chief Risk Officer at Kotak Life Insurance. He said that endowment policies would be best suited to achieve the goals of most parents. According to financial planners, besides investing in policies or funds for child education, parents should invest in adequate life insurance coverage, taking into account their existing liabilities and financial goals, including child education planning. This will ensure their children are financially secure and are able to afford their choice of education, even in case of any eventualities.