KOCHI: Every parent aspires to give quality higher education to their children. Where they stumble, however, is the rise in cost of education. Over years, estimates show that the cost of primary and secondary education increases at an inflation rate of 12 per cent and Higher Education between 16 per cent-20 per cent, in India.
Start Early and Save Regularly
Parents can prepare themselves to meet the cost of their child’s higher education by setting aside a sum every month and investing it regularly. Among the financial instruments, equities have a track record of delivering higher returns compared to other asset classes, in the long run. An equity oriented mutual fund will be suitable for this goal, and have schemes named for children as well. Ideally parents can start a SIP (Systematic Investment Plan) in the name of the child. In order to create a sense of commitment, make your child aware that you are saving for them regularly and why. As they observe you, it would develop the habit of thrift and savings among them as well.
About SIP
Systematic Investment Plans in Mutual Funds is the best way of investing in Equity Market, as they play in favour of Value Investing in both bull and bear markets, with compounding and cost averaging, respectively. For someone who is new to this phrase, SIP is an investment method in which investors choose to invest a fixed sum every month on a pre-selected date in a mutual fund scheme, and for a pre-defined period (which ideally should align with number of years to reach the goal).
Since investment happens every month, it eliminates the risk of timing the market. When the price of the selected mutual fund unit, technically called as Net Asset Value (NAV), goes down due to the drop in market value of portfolio, Investor buys more units. When the price (NAV) goes up, Investor buys lesser units, thereby achieving a better Average Purchase Price over the investment tenure. When the portfolio appreciates in the long term reflecting the broader markets and economy, as it did in the past, Compounding helps in delivering higher returns on all units accumulated.
Children gift plans
There are few schemes dedicated for children which parents could use as a meaningful gift for securing their child’s financial future. They invest the corpus in equity oriented instruments, hence are subject to intermittent market volatility. If one is confident about the markets and the fund’s performance they can go for a bulk investment, else simply choose the way of SIP. They come with ‘lock-in’ and ‘without lock-in’ options. Lock-in period is until the unit holder, here the child, attains 18 years of age or 3 years from allotment, whichever is later. We suggest parents to opt for the lock-in option as it helps in keeping the goal on track and avoids any deviation.
The author is the associate director at Geojit Financial Services
The views expressed by the author are his own