Education in India is viewed as a stepping stone to a good future.
The race to get children into the best colleges is so keenly fought that every Indian parent can qualify for a role of an expert counsellor. The “padhai karo, nahi tho achchi Naukri kaise lagegi” line is so often heard that it could very well replace the “so jao, varna gabbar aa jayega” line.
The belief that a good education will provide for a good life, is entrenched in the way we think. Indian parents are willing to go to lengths to provide their children with the best education and are ready to spend as much as it takes. Many parents start saving when their child is very young, to prepare for future college related expenses.
In this blog we will look at 5 avenues where Indian parents can consider investing their hard-earned money.
5 Ways You Can Save Up for Your Child’s Education
Your child’s education does not deserve to be compromised and here are some ways in which you can plan ahead and start taking small steps towards your child’s college fund.
Let’s get started.
1. Investing in Mutual Funds
We’re sure you have heard of the phrase ‘mutual funds sahi hain’! And when it comes to saving up for long-term investments, mutual funds definitely sahi hain!
Investing in mutual funds as a way to build a corpus fund for a particular goal has gained a lot of interest in the past decade or so. Building a retirement fund or a home purchase fund are very common and a small percent of investors are also parents keen on saving up for their child’s education.
Investing in mutual funds is viewed as a potentially high-return investment with risk involved , since the returns on mutual funds are market-related. Markets have been extremely volatile in the recent past, but mutual funds should still form a large part of an education fund, considering the longer time horizon involved. It is possible to invest as per your risk preference and redemption is far easier when you need the money.
With Systematic Investment Plans (SIPs) that give you the option of investing monthly, there is a possibility of better returns compared to one-time/lumpsum investment mutual funds, especially over longer investment periods.
2. Exchange Traded Funds (ETFs)
For those of you who are unfamiliar with the concept of ETF, it is basically a basket of securities that is traded on an exchange. They are similar to mutual funds.
Investing in ETFs can prove to be a successful investment option, when saving up for your child’s education. Reason being, you will be investing your money in dollars, therefore, if your child aspires to pursue his/ her education abroad, the dollar holds more value than many other currencies.
3. Buying Insurance Plans
Buying an insurance plan to provide income security to your child is also an option. Many of these so-called child plans provide insurance cover and also market-linked returns after a fixed tenure.
However returns on these plans have been volatile and impacted by frequent regulatory changes. Also, child insurance policies may not be the best investment option, because they are bound by various terms and conditions.
4. Buying Real-Estate
Yes, this holds true for parents trying to save up for their children even today. Real Estate is considered by many, to be a good long-term investment. Since the time horizon that parents should consider is 15-20 years, real estate investments are good to maintain a diversified portfolio.
But, real estate has lost its sheen as an attractive investment option over the past decade or so, due to excess inventory and regulatory impacts.
There are a number of hassles when investing in real estate. Other than the declining returns – unreliable deals, possible legal tangles and a high wait time when one wants to sell are some of the factors to consider if this is an investment option for you.
5. Investing in PPF
In India, the Public Provident Fund or PPF is the go-to option for many parents when investing for their child’s future. It is a low-risk option which is exempt from tax on withdrawal. The returns are lower but predictable.
However, there is a limit to the amount of money one can invest through this route – the upper limit is Rs. 1,50,000, annually. PPFs are also less suited when an investor is ready to take more risk and willing to invest in market-linked funds.
We hope now you have a decent idea on what investment options you could consider, as well as the pros and cons of each.
In our next post, we will look at why we think mutual funds – through SIP mode – are a good way to build a corpus fund with the goal of educating your child. With this kind of an education fund you can stop worrying about the finances that are required to send your child to his or her college of her dreams.
Your investment today, will gift your child a good life, tomorrow.