Education Savings Plan: How To Save For Your Child’s Education

Education Savings Plan

The cost of higher education is already prohibitively high and continues to rise at a rate of 10 to 12 percent annually. One of the most significant expenditures that families must plan for is their children’s education.

The cost of educating children has also been affected by lifestyle inflation. The choice of where to send your children to college changes as your standard of living rises. Children who grew up in more affluent environments are less likely to attend government colleges with inadequate infrastructure.

The Best Place to Invest for Your Child’s Education

The private sector has stepped in to fill the void and is charging exorbitant fees due to the high demand for high-quality education and the limited number of seats available at government-aided premier institutes like IITs. Even the institutions subsidized or run by the government are not far behind. These colleges have been raising fees to cover their expenses because the government has asked them to become self-sufficient.

For instance, the cost of a two-year MBA at IIM Ahmedabad today is close to Rs. 19 lakhs. It was around Rs in 2009. 4.5 lakhs, or an increase of 12% annually over the past ten years.
Now, the big question worrying Indian parents is: how will they be able to fund their children’s higher education? They can, if they plan ahead and take the right steps. 

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How Much Should You Save For Your Child’s Education?

You must first determine how much money you will require when the time comes before you can discuss how much you need to save.

The amount you will need to pay for your child’s education in the next five, ten, or fifteen years could reach 6-70 lakhs if this price increase trend holds.

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How Can This Education Fund Be Built?

When you look at the number, it’s you feel panicky. Moreover, these are not insignificant sums. However, you need not be worried. You will be able to have this education fund built if you invest appropriately, regularly, and in the right instrument.

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Education Savings Plan

Let us see the various ways which will help us build this education fund.

Be An Early Bird And Start Saving Early

One obvious solution to build your education fund is to start saving early. Not only will you be able to accumulate a larger sum, but the money will also benefit from compounding. A delayed start will not only result in a smaller corpus but may also put other financial objectives in risk due to the high rate of education inflation. Parents should follow this golden rule.

Person A, for instance, has a son who is three years old and will graduate in 15 years. In today’s world, graduation in India costs Rs 5 lakh. In 15 years, the cost of graduation will be approximately Rs 21 lakhs if inflation is assumed to be 10%. Person A will need to invest Rs 4,180 per month if he begins to save for his child’s education now. But if he delays starting this investment and starts it in the next five years, it will cost twice as much—Rs 9079 per month. The key to saving money for education is early investment.

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Choose The Right Option

An early start isn’t enough. Parents must also invest right to get optimum returns. Now, the question arises, where should you invest to build an education fund?

1. Stock Market

Many people would say the stock market is the best way to compound your money in a limited period terrible, while others may consider it terrible. Investing in stock market is not a cakewalk as it seems. If you are interested in investing in the stock market, you need to have ample knowledge about their nitty-gritty.

2. Mutual Funds

Mutual funds are at present a quite beneficial investment options available. Based on your risk profile you can choose your mutual fund to invest in. 

  • ‍Least risk profile, decent return: You can invest in large-cap blue-chip funds or index funds, if you don’t want to take too much chance with your hard-earned money and earn a decent return.
  • Moderate risk profile, decent return: You can invest in debt mutual funds, mid-cap funds, dividend yield, or ELSS funds, if you are all right with taking a moderate risk.
  • High-risk, aggressive growth: For those with a high-risk appetite and looking for maximum compounding growth in the least amount of time you can invest in multi-cap/Flexi-cup or small-caps.

‍The profit and loss in a mutual fund are highly dependent on the underlying security performance and market’s performance. As a result, due to this volatility there is no assurance that you will only gain in the mutual funds.

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Another trusted and safe place to invest for your child’s education is Gold. Due to its stability, high value, and easy liquidity, gold has been adopted as a preferred form of investment. These days, gold investment is not just limited to gold jewellery. You can choose to purchase digital gold, gold ETFs, gold mutual funds, and, also Sovereign Gold Bonds.

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4. Government Savings Schemes

 The Government of India offers many lucrative and safe savings schemes to build your education fund. It includes,

  • Sukanya Samriddhi Yojana (For girl child only): 7.6% interest; 21 years maturity tenure
  • National Saving Certificate: It is a government-backed form of savings account. 6.8% interest rate; 5 years maturity tenure.
  • ‍Public Provident Fund: 7.1% interest rate; 15 years lock-in period.

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5. Fixed Deposits and Recurring Deposits

The most common way used by most people in India to save for their child’s education is Fixed Deposits and Recurring Deposits. But just because everyone uses it, doesn’t mean they are the right way. Here is the reason why:

RD/FDs give you a guaranteed return in the range of 3-6%. But the problem here is that you have education costs growing at 12% and the money you are saving for it at 5%. This means you need to invest a lot more every month to build the education fund.

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6. Chit Fund

Another place where you can invest your money to save for your child’s education is chit fund. Chit Fund is a rotary savings scheme in which you can save money, invest and borrow according to your needs. The best part is that they are completely stable and are not subject to market fluctuations. In fact, investing/funding from a 100% digital, legal, registered, and regulated Chit fund like The Money Club is advantageous. The Money Club can help you create your child’s education fund.

When you invest in chits, you earn a higher return (10%-15% p.a.) as compared to other financial intermediaries. The benefit of saving with chit fund is that you can save month on month as per your capability.

With over more than 1 million transactions so far, The Money Club is the most preferred online chit fund platform to start your savings journey with!

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