A good education helps build a strong personality. It empowers a person to shine in any career. As a parent, you dream of educating your children and gifting them a bright future. To make this dream come true, you need to start saving and investing.
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A survey conducted by National Sample Survey Office (NSSO), between 2008 and 2014, showed that the average annual private expenditure for primary education to post graduation and beyond had shot up by an astounding 175%. The annual cost of professional and technical education had shot up by 96%. In 2014, the cost of education in private institutions was 11 times that of Government Schools.
Education inflation is around 10-12% a year. With soaring inflation, most parents are unable to provide their children with quality education. A good investment option like children’s education plan may be the answer. Child education plans are also called child investment plans. These are designed keeping in mind the importance of providing children with quality education and make sure there’s enough money at every crucial stage of the child’s growth.
There are two types of child education plans in India. They are:
Unit Linked Insurance Plans are investment plans which give twin benefits. They provide risk cover and return on investment by investing in equity and debt. ULIPs are subject to market risks. Their value moves up and down in line with markets. ULIPs are great for long-term investment.
Child Endowment plan is a life insurance product. If the proposer (parent) dies due to any reason within the term of the plan, the beneficiary (child) gets the sum assured. You must opt for a waiver of premium rider in a Child Endowment plan. A rider is an additional benefit that can be obtained by paying a slightly higher premium.
If the parent dies before the plan matures, a death benefit is paid out immediately. The uniqueness of this plan is that all the future premiums are waived off and are paid by the insurer. On maturity of these plans, a guaranteed lump sum amount is paid out. Now that we have seen the two important child education plans, we see 10 rules for planning your child’s future:
Set child education as one of the financial goals. Accordingly, include it in your financial planning. Estimate how much you need to fund children’s education and plan accordingly. Set clear financial commitments and milestones for child’s education.
Ideally, children’s education planning should be started within 90 days of your child’s birth. Early investing helps in wealth creation.
NSSO has said that the cost of professional degrees will almost double in six years. Therefore, factor in the rate of inflation while planning for children’s education.
Merely investing in Fixed Deposits does not help. Generating a corpus for your child’s education is not an easy task. Therefore, you should invest in equity funds which will build wealth in the long term and you can enjoy the compounding benefit. You may also opt for the SIP route while investing in Mutual Funds.
Opt for a premium waiver rider benefit in the child endowment plan. If the parent dies before the plan matures, a death benefit is paid out immediately. Future premiums are waived off and there’s another payout on maturity of the plan.
The idea of investing in child education plans goes for a toss if you don’t avail a life insurance plan. You can opt for a term life insurance policy. God forbid, if something happens to you, wife and kids get the money which will be used for child’s education. The child’s education plan is not impacted.
Save aggressively for your children’s education. Start investing early and diversify your child education portfolio. You may be a risk-averse investor. Stick to conservative investments like FDs. If you are an aggressive investor, invest in equity. Equity is quite safe over the long term and helps build a huge corpus for child’s education.
It is always important to choose a nominee for your investments. The nominee could be the guardian who manages the money (death benefit), till your child attains maturity.
Partial withdrawal plan comes to your aid in times of an emergency. It allows you to partially withdraw from the child plan and ensure liquidity for such situations.
Leaving anything on autopilot mode doesn’t serve the intended purpose. Likewise, it is important to review the child education plan at least once a year. This ensures that everything is on track. Check if education costs have gone up more than anticipated. Check if your investments are giving expected returns.
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