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Importance of a Higher Education Savings Fund in India

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The growing expenses of the education system in India has posed a challenge for most of the parents of this era. Gone are the days, wherein the education expenses were affordable in the country.

 

With the growing inflation rates and the top-notch competition to get into reputed institutions, it becomes tough to figure out as to how much to save for a child's higher education.

In India, we do not have a dedicated instrument meant for accumulating funds for higher education expenses of children.

Importance of a Higher Education Savings Fund in India

So, the need of the hour is the requirement of an investment option which is structured to accumulate funds and allows for a tax-free withdrawal. This kind of a structured instrument will help the investors/parents to save enough funds for their ward's higher education.

Common Problems Faced

Common Problems Faced

The parents or guardians do face some common problems while investing for their kid's education as it is difficult to figure out how much to save for a child's higher education. Firstly, they plan for investment and save money in an ad-hoc manner.

Some of the investors do not take into consideration the inflation rates and end up predicting a lesser amount for the educational expenses.

Saving enough money for children's higher education is not an easy task as it is difficult to make and track the investment for a long tenure.

Investment Instrument
 

Investment Instrument

Next thing is to zero on the investment instrument to save for a child's education. So far, the prominent investment options available are Sukanya Samraddhi Scheme, mutual funds, children's plans from insurance companies.

Though Sukanya Samraddhi Scheme and Child Plans do come up with low risk they do have their share of drawbacks.

At times it is difficult for the investors to choose the best form of investments as most of the instruments do have risk factors associated with it.

Drawbacks of Investing in SSY

Drawbacks of Investing in SSY

Generally, the child plans in India do not fetch the given returns to match with the prevailing inflation rates. It also comes with the disadvantage of covering the life of the child, though it is not required.

In the case of the Sukanya Samriddhi Scheme/ Yojana, only 50 per cent of the invested amount can be withdrawn when the girl child attains 18 years of age. So many parents have taken the path of mutual funds through systematic investment plans (SIPs) in India.

Proper Investment Vehicle

Proper Investment Vehicle

Another major hurdle faced by investors for higher education savings is the operational procedure involved in investing which is cumbersome.

Most of the times, parents will invest in their name to be used later for a child's education or they will contribute money towards their ward's account for investment.

Here, initially, parents or guardians will start investment for their children's education but somewhere they will not be able to adhere to the investment path strictly and lose track.

Apart from this, investors may not take into consideration factors like rising inflation rates when it comes to educational expenses.

The need of the hour is we need an investment vehicle like National Pension Scheme or NPS to garner funds for meeting out the Higher Education Expenses. The fund for higher education savings should be of low cost with many pension fund managers and offering different investment plans.

The government of India should provide some tax benefits, on withdrawals as this will inculcate the habit of savings amongst parents for their children's higher education.

GoodReturns.in

Read more about: savings higher education
Story first published: Thursday, January 7, 2021, 21:10 [IST]
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