New Delhi: Education is an expense that only increases with time. As your child grows, his/her education expense will only go up. With schools, colleges, universities, business schools, management schools, etc. hiking their fees, education cost has increased in double-digits over the last 10 years.
In times like these, how must you plan your finances to provide for your child’s education? How old should your child be when you start planning for their education? How much from your budget should you allocate to the education overhead? and most importantly, how and where should you invest to get returns enough to cover your child’s education expenses? Read on to find out.
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We were joined on the channel by Santosh Navlani, COO of ET Money, who shared some tips for parents looking to invest to make provisions for their child’s education.
He said it is important to first figure out how much money you will need- it is fundamental to any planning process to know the goal at the end of the tunnel. Account for the best opportunities you want to give your child while accounting for living expenses and adjusting for inflation.
He advised against parking money into fixed and recurring deposits as post-tax effective return is less than 5%, not enough to beat inflationary pressures. Instead, he recommended investing in mutual funds as they are a relatively more flexible option compared to other avenues.
“Invest in Sukanya Samriddhi Yojana if you have a girl-child,” Navlani advised. Highlighting the features of the scheme, he said that it offers 7.6% interest on maturity, and falls in the exempt-exempt-exempt category, which means the maturity returns are non-taxable. He added that another option to invest in if you don’t have a girl child would be equity-oriented mutual funds. Advising against children’s mutual funds, he said that the high exit cost that comes with that instrument is its biggest drawback.
Where should you as a parent be investing your money?
Navlani said that if college education is more than seven years away, which would mean your child is around 10-11 years old, then investing in pure equity funds would be the best option. But if your daughter/son is only three years away from college, then investing in aggressive hybrid funds would give you a chance to get the returns you want faster.