Optimizing Education Fund Planning for Future Generations
In the fast-changing economic landscape of India, the cost of higher education has become a significant concern for parents. While inflation rates may be down to nearly zero, the cost of higher education continues to rise at an alarming rate, ranging from 10-12 per cent annually. This presents a substantial challenge for families planning to save for their children's education. This article explores the key factors and strategies to effectively plan and fund higher education, ensuring that today's efforts align with future needs.
The Rising Cost of Education
Historically, the cost of higher education has been manageable, especially with the availability of government institutions and modest fees. However, this scenario is transforming rapidly. With heightened competition for admission to quality government-run institutions, students now frequently opt for more expensive private institutions. Additionally, lifestyle inflation has further compounded the costs.
The table below illustrates the rapid increase in educational expenses. A four-year engineering course currently costs around Rs 6 lakh, which is likely to grow to Rs 12 lakh in just six years. By 2027, an engineering degree will cost a staggering Rs 24 lakh. These figures highlight the urgency for parents to plan their education funds meticulously.
Planning Ahead: Early and Wise Investment
To tackle the escalating costs of education, one of the most effective strategies is to start saving as early as possible. Financial expert Vishal Singla from Gurgaon began planning for his daughter's education when she was just three months old. This early start not only maximizes the compounding effect but also paves the way for a more substantial corpus by the time the child reaches college age.
According to financial calculations, a corpus of Rs 1 crore is not out of reach. By investing Rs 9,000 per month in an equity fund, compounding at a 15 per cent annual return over 18 years, it is possible to accumulate this amount. Delaying the start of savings can significantly impact the outcome, making it difficult to meet the required amount by the time the child is ready to pursue higher education.
Choosing the Right Investment Vehicle
While starting early is crucial, the choice of investment is equally important. Traditional life insurance policies, while offering assured and tax-free returns, have historically provided lower yields of around 5-6 per cent. In contrast, equity mutual funds have delivered average annualized returns of 16.5 per cent over the past decade.
For parents with 15-18 years until their child begins higher education, equity funds offer the best potential for high returns. However, equity investment is not suitable for everyone, as many investors still prioritize safety. According to the recent DSP BlackRock Investor Pulse survey, nearly 52 per cent of 1,500 respondents preferred investments with guaranteed returns.
Parents should carefully balance the risk and return of their investments, ensuring that they are aligned with their financial goals and risk tolerance. Diversifying investments across sectors and financial instruments can help mitigate risks while still achieving the desired return on investment.
Conclusion
Planning for your child's higher education is a complex yet essential task. By starting early and choosing the right investment vehicles, parents can effectively manage the rising cost of education and ensure that their children are well-prepared for their future. The key is to realize that education is an investment in your child's future, and planning now can make a significant difference in their future opportunities.