Child Education Plan& Investment Plan
What is Child Education Planning?
A Child Education Plan is a systematic way of planning the course of your investments in view of the fund requirements for your child's higher education. It is a necessity these days if you want to give your child a bright future.
Depending on the amount of money needed and the time frame available, one can invest in a lump sum or in systematic installments, whichever suits your needs and lifestyle. So, Child Education Plans are flexible plans where you can plan according to your specific needs.
Why is planning for your child’s education required?
While long-term average retail inflation is 4–7%, that for the Child Education Plan is a whopping 11–13% year over year. We live in a continuously changing world, and I am sure you agree with us on that. In the past, planning was not considered necessary, and you could get through without a child's education being planned. However, the situation has changed, and education costs have risen more than anything else in recent years.
Let's learn by example. The two-year postgraduate fee at IIM Ahmedabad for the 2019–2021 batch was Rs. 23,00,000 and for the same course for the 2007–09 batch, it was Rs. 4,30,000. The premier educational institution has increased by nearly 435 percent in the last 12 years! So, in 12 years, there has been a 435 percent increase, which is far from low.
Imagine, if the education inflation continues to grow at this rate, who knows what amount will be required to meet your child’s educational expenses. This scenario is not just for higher educational institutions; the same trend is being observed for undergraduate courses as well.
As a parent, you should plan for your child’s education as early as possible; otherwise, it will result in chaos when you are searching for the best courses and best institutes. The last resort will be an education loan and you know better the interest rates and everything. So, instead of wasting money on loan interest, hire the best investment services that can enroll you in the best Child Education Plan.
For your ward’s Child Education Plan, you might have some confusion, like:
- Will I be able to afford my child’s entire education?
- What will happen if something happens to me?
- Do I currently earn and save enough to fund the expenses of my child’s college?
These confusions get minimized with proper planning, which is best done when you enroll in the Best Child Education Plan, and who better than WC Securities Pvt. Ltd. to assist in that?
Why is it critical to locate the best Child Education Plan?
- It prepares you for unforeseen circumstances.
- It prepares you for inflation.
- It saves you from taking an education loan.
- It gives peace of mind that you are already planning for your child’s education, which is a costly affair.
Benefit of Starting Early
The earlier you start the better it is. The target corpus can be achieved by investing in smaller amounts, thanks to power of compounding.
With power of compounding, you can earn interest on your Child Education Investment Plan, which gets multiplies with time. The longer you hold, the greater the amount because interest received is not on purchase value of investments but on total value of your investments.
For ex, if you invested Rs. 100. By month end, you receive 5% interest.
Total value of investment: Rs. 105.
In the next month if you receive 10%, it will be on Rs. 105 and not on Rs. 100. Hence by the end of second month, your total investment will be Rs. 115.5.
Assumptions:
- Fund requirement when the child is: 18 years of age
- Duration of higher education: 2 years
- Cost per year as of today: Rs. 10,00,000 per annum
- Existing savings: Nil
- Expected rate of return: 12% (this will vary as per risk profile and time period, for illustration purpose it is assumed to e 12% throughout)
- Expected Inflation Rate: 11.5% (as per historic data)
Following table shows the benefit of starting early:
| Child Education Planning Table | |||
| Child Age | Amount Required At The Start Of The College | Investment Option | |
| SIP Amount Required | Lumpsum Required | ||
| 1 | ₹ 13,458,080.00 | ₹ 21,565.00 | ₹ 1,960,093.00 |
| 5 | ₹ 8,707,303.00 | ₹ 24,333.00 | ₹ 1,995,489.00 |
| 10 | ₹ 5,052,535.00 | ₹ 32,177.00 | ₹ 2,040,634.00 |
| 15 | ₹ 2,931,804.00 | ₹ 68,056.00 | ₹ 2,086,800.00 |
Hence, earlier you start saving the better it is.
How to Go about Child Education Investment Plan?
Case 1. Time period in hand: 15 to 18 years approx.
You have a good time period in hand to invest for your child’s education and gain from power of compounding. While investing, do remember to keep the inflation to 10% to 12%.
Further, you can choose to keep the major chunk (80% approx.) in equity, because of the longer time horizon. Else, if equity sounds risky to you, choose aggressive hybrid funds.
Case 2: Time period in hand: 10 to 12 years approx.
Y10 to 12 years is a decent time period. Keep 70% in the starting years in equity and decrease the allocation in equity as you move closer to your goal.
You can also increase the investment amount by certain percentage every year. By topping up, you can choose to bridge the gap between the goal amount required and current scenario.
Case 3: Time period in hand 5 years approx.
Since you have a shorter time period, avoid illiquid investments. Also, keep less than 10% in equity. If you have already invested for your child’s education, gradually start shifting the amount to debt, to avoid the volatility.
If you started in it fresh, go for debt mutual funds and/ or FDs.