Smart Ways to Invest For Your Child's Education

Business

oi-Sunil

By Sunil Fernandes

Published: Wednesday, January 21, 2015, 8:46 [IST]

Bulk of the income for an Indian, goes into two things: making a home for himself and the second is providing decent education for your child. Providing a decent education for your children is now as expensive as making a house, especially if you have two children.

An engineering course costs around Rs 8 lakhs currently and the figure could double 5-6 years down the line. The cost for two children would obviously be twice the amount. The only way you can beat the cost of education is to generate returns that are much more than the inflation seen in the cost of education. You can follow some smart ways to save for your child's education and beat the annual rate of education inflation. Here are some ideas.

Moving Money into Equities Becomes a Must

One of the ways you can generate returns to beat the cost of inflation in education is to invest in equities. Well, if you do now know much about equities then you could probably look at mutual funds. Several mutual fund schemes have generated tremendous returns in the last few years. For example, almost every large cap equity fund has generated returns of almost 50 per cent in the last one year. Axis Equity fund has generated a return of 70 per cent in the last one year, while the 5 year returns has been 24 per cent.

ICICI Prudential R.I.G.H.T. Fund has given returns of 70 per cent in the last one year and 24 per cent in the last 5 years. Now, the returns is way above inflation, including education inflation in India. We can give you several other example of equity mutual funds that have generated super returns in the last 5 years.

If education inflation is rising at 10 per cent and you put money in a bank deposit the chances are you might not be able to match the inflation.

Start Early

The other best way to provide for your child's education is to start early. The earlier you start the more funds you are likely to gather. Remember compounding also works in favour of those who start early. You can use a number of ways and through proper planning could achieve your objective.

Age a Big Factor

If you see a need for your child's education in the next 5 years you may not want to look at equities as they are a little risky. Look for debt oriented schemes and debt instruments like bank deposits, small saving post office schemes. It's not appropriate to take risk when the time frame is too short. Though investing in fixed deposits may not give you superior returns, your choices are limited when the time frame is short. That is why you need to start early.

Look at systematic investment plans

If you want to save at regular monthly investments, the best way would be to invest in systematic investment plans of mutual funds. If you do not want to choose that option, look at some other plans like recurring deposits of banks. This would make you save compulsorily each month and thus build a an education corpus for your children.

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