We sometimes wonder if we are on the right track when it comes to saving for our child’s future. It starts from the time they start their first steps at school. The cost of education is only rising day after day and we pray and hope that we have enough saved when it comes to their education- graduation & post graduation. After all, this can’t be compromised right?
On my 16 years old’s birthday this year, it hit me- I have only 2 more years before he starts his graduation. Besides, the typical apprehension of my baby flying out of the nest, the other thing that hit me hard was the funds required for his graduation.
Getting through a good grad school is not easy these days. I see more and more peer group sending their kids abroad for graduation since 1) Competition is quite high in India and they don’t want their kids to stress, 2) Kids are more open to the idea of studying where they are offered subjects of their choice. India having its limitations on courses and colleges for the same, I don’t want to be in a situation where I can’t let my child pursue his academic future for the lack of funds.
Two years is not a long period to plan for 1Cr goal- yes that is the average cost for a graduation abroad these days. Didn’t I plan for it earlier? Yes, I did. These are the few things that I had put in place and others which I have started working on now:
- PPF (Public Provident Fund) – One of the safest ways to invest for a child. The investment has to continue for a period of 15 years at least and can be extended for blocks of 5 years after that. With an average of 8% returns which are tax-free, it is a good medium for young parents to save for the kid’s education. By the time the child graduates, a reasonable corpus has been created. However, do remember, this saving product is only for a long term goal. I started PPF for both my kids when they were 2 or 3 years old. Besides putting in all the cash gifts they would get for their birthdays, festivals etc, we would top it up based on maximum permissible limits (this current limit is Rs 1.5L).
- ULIPS (Unit Linked Insurance Plans)/Child plans – We had started on a child plan each for both my kids. Mainly to secure funds for their education at 18, the policies provide a sum on maturity even in a case of the parent’s demise, besides an option for a premium waiver on death till the child turns 18. Investments and Insurances should never be combined together. Unfortunately, I got to understand this only when I did my CFP course. Though these policies were a good medium to invest for the kid’s education, ULIPS, in general, haven’t given returns that were expected from them. The reason being, the cost of insurance and the high fund management charges which were allocated to the premiums paid for the policy over time. A combination of pure term insurance and investment in the equity market could have worked better over the last 12 years that I have been holding these policies. While one policy gave me an annualized return of only 5% (I could have done better in a Fixed Deposit ), another gave me 9% (good returns for a a ULIP but not good compared to Equity markets which could have given me 12% at least over the time). While I surrendered my first policy immediately and invested the funds in the Equity market, I am still waiting for the right opportunity to surrender the second one.
- Equity Mutual funds – We invested some funds in the equity mutual funds at the same time as the PPF. The funds have given us good market returns of 18% over the 10 year period. But remember, with equity, the longer the term the better and you have to fill it, shut it and forget it! Considering the short span to my son’s graduation, I have now invested further in the equity markets hoping to increase the fund value in the next 2-4 years. Equity markets have better returns but come with higher risks too.
- Sukanya Samriddhi Scheme – This is a new scheme launched by the government this year for a girl child. It is available if you child is less than 10 years old. The returns are better than PPF (gives 8.6% currently), tax free and funds are available when the child turns 21 years of age- for post-graduation/ marriage. Do consider this if you have a baby girl. I missed this opportunity as my daughter is already 14.
Though I have discussed only investment options here, a pivotal consideration should be given to adequacy of life insurance. Children’s education goals cannot be compromised in case something happens to you. My term insurance policy will take care of not just my family’s future expenses but also the kid’s education costs in case something does happen to me.
Start investing now if you haven’t already.
Just like we teach our kids- Take small steps every day. You might not get there today but you’ll be closer than yesterday!