How to finance your child’s education with systematic planning?

Are you the parent of a toddler or a teen dreaming of professional career through excellent education? It is true that the little one of every parent deserves a great start in life. The best way to provide such essential head-start is to create a sufficient financial corpus that has been readily available for that most-sought career in your child's life. And this should be because primarily of uprising expensive education at this era of rapid evolution of technology in education system too. At this millennium age, quality education can be provided through long-term financial planning for child education though availing education loan has been preferred most to give the 'best of everything' nowadays.

As an aspiring parent why don't you think of investing in an educational plan the moment your child is born? Wouldn't it be a better option to plan for long-term child education plan to meet out the essential career milestones of your child? Taking a bank loan and repaying with high interest rates has been a cumbersome process and a dampener for the middle class. It seems not easy for all. Statistics reveal that availing education loan has yet continued to be an uphill task for both students and parents as well. As a parent, if you don't need to fund your child's higher education immediately but in the long run, you would then plan in accordance to create a significant pool of investment to fulfill your child's education needs.

Major issues to be considered in a child education plan

While planning to build a fund for your kid to carry out higher education, you need to consider three major issues to ease your financial strain down the line. Initially, prior to creating your financial goal for higher studies of your son/daughter you are supposed to determine the kind of studies that you prefer your child to pursue. Would you like to have your teen to study medicine or engineering or architecture or fashion designing or study abroad management or compute technology course? Whatever it should be you are required to set up a goal for your child to pursue higher studies. Secondly with the education roadmap you have chosen for your child to adopt, it is then prudent to avail a basic report on the cost of education at the school and college level as well. Getting information about the schools and colleges that you likely consider and estimation of tuition fees of the respective institutions would help you to draft a financial budget for education expenses of your child down the road. However, lastly, the real challenge lies in the execution of your financial plan for education needs in the right way. While drafting the plan as a parent you are required to consider foreseen risks also to get the fund matured at the desired level. Savings through mutual funds, fixed deposits, and insurance schemes are various options to make a funding for higher studies. On following an investment strategy with the calculated risks, it is better to choose a combination of diversified equity and balanced mutual funds based on the time horizon of your plan. Investment on other types of asset categories would be ideal too.

Let us simplify this with an illustration. Assuming that Mr. Krishna has a one year old daughter and he wishes that his daughter would take up a career in management by enrolling in one of the topmost business schools. He needs to create a corpus for his daughter's higher education in management. With the following systematic child education plan, Krishna can accomplish a dream career for his daughter.

Estimation of current expenses for an intended course
With Krishna's daughter being a year old and seeking admission to a B-school while turning 20 years of age, he has a time horizon of 19 years in advance to build a funding for higher education in management. He drafts an estimation of the cost for doing MBA course as ten lakhs in INR at present presumably.

Calculation of the cost of intended course in the future
Despite the assumption of the cost of the MBA study program currently at Rs.10 lakhs it is 100% true that it would raise substantially in 19 years in the future. This is due to the fact that the demand for management courses exceeds the number of seats prevailed at the current education scenario and this prevalence would continue to exist in future too with the cost of education rising sharply. Taking to be the case that the education expenses for management program may increase by at least 10% each year it would then be estimated at above Rs. 55 Lakhs roughly at the end of 20 years of age of the daughter. Hence Krishna must be sure that he has built up a corpus of 55 Lakhs once his daughter turns 20 years of age to pursue MBA.

Drafting and execution of investment plan
For accomplishing a financial goal of about Rs. 55 lakhs in 19 years, Krishna has required to draw an investing module to reach the goal of funding for his child's higher education. As an investor for education of his child, a long-term goal to be achieved, he may keep his investment in mutual funds that have been a combination of equity and balanced MF for certain time, say for instance, for 16 years approximately. For another three years prior to the financial goal period he may hold his funds by shifting to a secured fixed deposit types since not taking the risk of investing in equities up until the final year of the plan. This is based on the assumption that in India by history around 15% CAGR, i.e., compounded annual growth return over a long-term has been generated through equity fund markets.

Would you like to go for the insurance route for funds? Endowment and unit-linked insurance schemes with numerous child education plans, single or yearly premiums, covering both the child and parent invariably take you to reach the financial goal. But prior to choosing any insurance plan you need to be aware and cautious on various issues related to its clauses.

Consistent review of the plan
As an investor in the equity mutual funds markets, Krishna should keep an eye in reviewing the mutual fund management consistently. He needs to analyze to make sure that the funds he has chosen do perform well enough each year to attain his final financial goal without any haphazard.

With a similar systematic corpus planning, no doubt your dream goal of educating your child can be accomplished successfully in reality. What all you need is to have an assistance of a financial architect while drafting a plan for funding for higher education of your child.

How to finance your child’s education with systematic planning?

Major issues to be considered in a child education plan

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