Most of the parents dream of providing their kids with the best education. But parents, who dream of sending their kids abroad, have a bigger goal to achieve. Not only they need to accumulate a huge corpus but they also need an investment plan to be able to accumulate it. Here is a 5-step plan you can follow to make sure your dreams do not remain unfulfilled due to financial restraint:
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Before you start your planning, it is important to estimate roughly the amount you need. While calculating the total cost, make sure to consider the overall cost along with the tuition fee. Listed below are some of the other things you need to include while creating a rough calculation of the total cost involved:
The above-mentioned factors will help you get a rough estimate of the total corpus you need when your child attains the age for higher education. Since the cost of education also varies across countries, you must also consider it an important factor. For example, the living expenses in the UK are more than living expenses in the U.S. You must consider chalking out a rough budget to avoid the accumulation of insufficient funds.
See Also: Education Loan Eligibility
Once you have established the budget, your next step will be to decide on how you can manage this cost. Here you have two options, depending on the time you have in hand. If your child is young then you have ample time, but if your child is about to complete schooling then you have limited time.
Considering your child is 5 years old, you can look for investment options like mutual fund SIP or PPF that can help you systematically accumulate this corpus by the time your child becomes eligible for study abroad. Since study abroad involves high expenditure, it is wise to start planning ahead. This way you will have a bigger time period.
But if your child is only a few years away from reaching the eligible age, then you can fund through an education loan. While most of the lender will fund 85% of the course cost, you will have to take care of the margin money and other miscellaneous costs.
Starting an Investment is the best way to fulfill any goals in the future. Since you wish to fund your child's education and give him the freedom to choose the best universities without financial constraint, you must start investing as early as possible. You can choose among various investment options according to your risk appetite.
Every investment option works well when you consider investing for a long time horizon. The more you delay the more you lose options to create the desired corpus. For example, if the overall cost roughly stands at 50 lakhs and your child is 5 years old then you have 13 years to create the required corpus. You can choose aggressive investments like Equity mutual fund through SIP that can help you create the corpus at 12% returns.
Now consider an alternative situation where your child is 12 years old and is about to complete schooling in the next few years. In this case, you have an investment horizon of 6 years and also have limited investment options. Thus if you choose to invest in SIP for 6 years, you will have to make huge monthly payments to reach the desired corpus.
Your work doesn’t end here. You have to make sure you review your investments periodically to make sure they are performing as per your expectations.
Since mutual fund investments carry market risk, you must keep an eye on them to spot the underperforming funds. Thus you can replace these funds with the better-performing ones if you keep a regular tab on them. You can also compare the performance of your mutual fund performance by comparing it with its benchmark indices.
Since you aim to accumulate a considerable sum, you need to make sure you keep reviewing your investments periodically. If you have invested in debt instruments then a timely review will help you understand whether the accumulated corpus is able to keep up with inflation. If you feel the corpus is falling short, you can make timely adjustments like increasing the contribution or make alternative investments as per the circumstances.
See Als: Education Loan Procedure
Since this is a long-term investment planning, you may consider shifting your accumulated funds towards less risky options as you come close to your goal. Suppose your investment horizon was 15 years and you are just 2-3 years away from reaching your goal, consider shifting the accumulated corpus into short-term FDs or debt mutual funds since these provide a high degree of liquidity and safety. Or you can consider investing high yielding savings accounts that offer good interest rates with the highest form of liquidity.
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