How much should I save for my child education planning in India?
This is a question almost all parents ask themselves because children’s education is an issue of the highest priority in our country. We all want our children to get the best education. With the emergence of more and more study options, many parents are confused on this topic. It is such an emotional issue that nobody wants to compromise for want of money. Still the question remains – how much should I save for my Child’s Education.
Here, the discussion will be limited to higher education after higher secondary course. Normally, the child will be ready for graduation at the age of 18. The amount should be handy by this time, even though the expenses will be incurred in the next 4-5 years depending on the course.
Higher Education of Child
We don’t know the interest of the child, when the child is quite small. But we cannot wait till the child is aged 15 to start planning for this goal. Then what is the alternative.
Don’t worry about the stream which the child will prefer for graduation. As a responsible parent, your job is to send him for the course of his choice. Whichever stream he selects at age 18, one thing is certain that the responsibility of arranging for the cost is on you.
Cost of Higher Education
That depends on the stream of study. But how to plan for it now, when we are not sure about the stream?
Here, you have to go for a decent figure as per your aspirations for the child. Later on, you can modify it when you are nearing the goal and when the child is developing an interest towards a particular stream.
A 4-year course in engineering will cost around Rs. 8 Lakh today; while a 2-year MBA course can cost you between Rs. 8-20 Lakh depending on the institute. The 5-year MBBS course can cost you even Rs. 30-40 Lakh in private medical colleges. If you assume 10% inflation, these courses will cost as follows after 15 years:
Engineering: Rs. 33 Lakh
MBA: Rs. 33-84 Lakh
MBBS: Rs. 125-167 Lakh
How to create this amount in 15 years?
If your child is aged 3 now, you have a 15-year period to create this amount. nSuppose, you are planning to accumulate Rs. 33 Lakh for your child’s higher education, then which instrument is ideal for such long-term investments?
Mutual Funds have given around 20% CAGR return in the last 20 years. Investing small amounts every month under Systematic Investment Plans have the potential to deliver much better returns than the traditional products like Bank Deposits ad Insurance plans. Even assuming a 12% CAGR return in the next 15 years, you can create Rs. 33 Lakh by investing Rs. 7,000 per month.
For creating Rs. 60 Lakh, you may invest Rs. 13,000 per month for the next 15 years. But if you start late, the investment target will be high.
Go for Education Loan for the shortage
In case, there is a shortage, you may opt for an Education Loan at that time. The banks are very liberal in giving student loans. The entire interest paid on such loans is allowed for tax deduction. This can help the child in saving taxes when he starts earning after the course. The repayment of EMI can inculcate financial discipline in the child. Prompt repayment can help the child in creating a good credit score too.
Get Professional help
If you cannot arrive at the amount for education goals, it is better to opt for the services of an independent Financial Planner. The Planner does not sell any products, but will recommend the instruments best suited for you. He will recommend the best Mutual Fund options where you can invest. It is better to select a Fee-only Financial Planner registered with SEBI as an Investment Adviser.