Every parent wants to impart the best care and education to their child. If you too have the same dreams then remember it’s never too late to plan for your child’s education expenditures. But remember, the earlier you start the better returns you can gain.
Firstly, you need to understand the amount of money you need to sufficiently fulfill your child’s future dreams. A plan can help you get started in the right direction and the right investment strategy is required to put your plan into action. Any delays can prove to be detrimental and may affect your child’s education in the future.
Since education planning is a long-term project and any change in circumstances can throw you off your financial plans. For calculating the exact amount you will need in the future you may use the online child education calculator. This online tool gives you an estimated cost by considering factors like a set time period and inflation. This way you can efficiently plan your finances and device a wise strategy for your child’s education.
While inflation and price hikes are inevitable, planning early can help you gain immunity against such unpredictable situations. Planning becomes more important if you aim to send your child abroad for graduation or post-graduation studies.
Don’t let yourself get overwhelmed by a lack of savings rather devise a smart strategy to build a corpus that will support you at crucial junctures of your child’s education.
PPF is one of the best accounts to hold when it comes to long term planning. While planning for your child’s education you must maintain a separate account and not mingle it with your retirement planning account. You may hold more than one PPF account and thus holding an account for your child education will allow you to build a corpus by investing small amounts of money.
Such accounts are great as they are also tax efficient and belong to the EEE category. You can avail of the tax benefits of Rs. 1.5 lakh per year under PPF investments. You can avail additional tax benefits on the interest income and maturity proceeds.
Some insurers offer endowment plans specially designed to cater to fulfill the educational aspirations of your child. These plans work like a regular endowment plan and provide insurance cover along with being an investment avenue. These plans provide financial assistance in case of an unfortunate demise of the child’s parents due to an accident.
Make sure to choose the investment amount by keeping in mind it is the sum assured you will leave for your child’s future in the event of your death. Also, make sure you have additional investments like term insurance so that the money from this plan can be used for your child’s education only.
Mutual funds investments allow you to build a good corpus for your child’s future. Since these kinds of investments allow you to save money for a greater tenure, you may choose equity or debt mutual funds that remain invested for long periods. Such investments help you get better returns as well as battle inflation. It will also allow you to make better returns by staying invested for a longer tenure of 15 to 20 years at a stretch.
You may opt to create a SIP investment that will help you build a steady corpus over a period of 5 to 7 years. You may reinvest the maturity proceeds in equity schemes. Equity schemes will help you counter the inflation risk.
This way you will be able to generate attractive returns while keeping risk under control. But keep in mind equity funds attract long-term capital gains tax of 10% of your gains are above Rs. 1 lakh per year.
If you are planning to invest in equity and debt funds then several factors like the time period of investment and the amount you choose to invest will be directly proportional to the amount of corpus you create. For creating a corpus of Rs. 50 lakh here is how you need to invest for a 3-year-old child:
To create an ideal portfolio 80% of your investments should be in equities instruments like aggressive hybrid funds and ULIP. The remaining 20% of the investment should be in debt funds like PPF.
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