As responsible parent you would like to know the Best Education Plan for your children.
Certainly you want a definitive clear solution to your queries like:
- How much money will be required for their higher education and marriage?
- Will my present investment be LIC plan or Sukanya Samriddhi Yojana, mutual fund investment sufficient for them or not?
- Will I get adequate return or not?
Which is the best Child Education Plan in India?
In this post you will get answers of all these questions
Let’s discuss the case of one of my client name, Raghav 32.
He is working as a sales executive getting salary of 40000 per month. He has a small family, his homemaker wife, his son Aarav 6 years and daughter Ananya 2.5 year old.
Raghav wants to buy best education plan for his children’s future.
Before coming to me, he had explored many options and every option was looking best to him.
Therefore he decided to take consultation from an established Financial Advisor.
Let’s Evaluate Step By Step his case
Step #1
Table of Contents
Know the current cost of the course (which your child may opt for)
I know you will probably say that I do not know what he would like to do in future or how can I predict what will he/she do ?
All right than, let’s take the current cost of graduation, medical, engineering and other good courses in India.
A simple graduation from any college costs around 2-4 lac per annum while a medical degree will cost around 25 lac.
A post graduate degree in Engineering will cost around 10-15 lakh and a MBA can cost anywhere between 4-25 lac depending on the institute.
If you choose, abroad education than it may cost little higher than the above figure.
If you think this amount is too high for you than there is an alternate. You can plan for a modest amount now and later on you can avail an education loan. Education Loan is available in the range of 12-14% interest rate.
Step #2
Determine the Time (Time in Years you have till first installment)
Second step is know the time duration left with you till the time you have to pay first installment .
In above case of Aarav, the duration is 12 year and in case of Ananya it is 15 years.
Step #3
Determine the interest rate of your investment and inflation rate.
Let’s assume few parameters:
| Time Left | Interest Rate | Inflation Rate | |
| Aarav | 12 years | 12% | 10% |
| Ananya | 15 years | 12% | 10% |
| We have Assumed that Raghav will start investment in equity mutual funds | |||
| The education inflation rate is assumed to be 10%. This inflation rate is different than Inflation rate declared by the Government from time to time.* | |||
* You may ask why such high inflation rate
You must be amazed that why cost of education is taken as 10% per year whereas government just declared it to be around 6% or little higher or lower.
This is because, here education cost is not just cost of education but it is lifestyle cost.
You will have to pay for other needs also such as hostel fee, day-to-day living cost (mind it, it may increase due to remote living from own home) and other miscellaneous expenses such as reading material etc.
Secondly, it is not basic escalation of cost but it is Lifestyle cost inflation.
Step #4
Determine future cost & Invest monthly/quarterly/half yearly/yearly amount
| Child Name | Time Left | Interest Rate | Inflation Rate | Future Amount | Monthly Installment |
| Aarav | 12 years | 12% | 10% | 47 Lac | 14,754 |
| Ananya | 15 years | 12% | 10% | 62 Lac | 12,000 |
As per the table Raghav have to invest Rs.26 K each month till 12 years and thereafter he has to make payment of 12K.
This amount looks to be very high as per the Salary of Raghav. But he has no alternative than to invest this much amount.
But in salary of 40 K, Raghav will not be able this much SIP. He has to pay for other expenses also.
Child Education Calculator
https://www.advisorkhoj.com/tools-and-calculators/children-education-planner
Now the question arises how he able to make it will.
After having detailed conversation with Raghav, we decided to find out a alternative to this issue.
Here is the ALTERNATIVE:
Raghav can start his SIP of Rs 5000 for his Son and SIP of Rs 3000 for his daughter.
I know you will ask me, than how will be able to meet cost.
Wait! (Smilingly)
What about the option of increasing each SIP amount by Rs 1000 or more year on year basis.
In this case Raghav has to increase his total SIP amount of Rs 8000 By Rs 2000 each year.
Alternatively, he can also invest lump sum payment whenever he gets some bonuses etc.
In addition to this, he can avail education loan in later stage, if it is required.
Other Options for child Education
Life Insurance policy
Life insurance companies leave no stone unturned while promoting the best Child Education plan.
But is it really worth to buy insurance policy to fund higher education of your child?
As of now, you know that the cost of education is increasing with leaps and bounds, which is 10%.
While life insurance policies return is around five to six percent. The return is little higher if it is a ULIP.
Take my words that you will never be able to make it from my life insurance policy.
Either you have to shell out more money or you have to face the situation of inadequate money.
So my take on it, do not buy Child education policy for education purpose. Request is to not mixing investment with insurance.
But please make sure to buy Term Insurance of ADEQUATE AMOUNT (right now consider present cost of education & marriage of both children)
Sukanya Samriddhi Yojana/PPF/NSC
You can plan children education from Sukanya Samriddhi Yojana, PPF or NSC also.
All three are excellent products if you are a risk averse investor. All these products have lock in of some period and offer a rate of interest around 8%.
However you cannot invest more than 1.5 lac in a FY in SSY & PPF.
Whereas any amount can be invested in NSC but tax deduction is only up to 1.5 lac ceiling.
Additional Reading : https://bestinvestindia.com/best-investment-options-in-india/
Mutual Funds
Mutual Fund is the another option for your child education.
You can start a SIP or a lump sum investment in mutual funds. For this matter you can start a SIP or lump sum or both.
SIP or Lump sum, is purely your choice because this investment depend on your cash flow nature.
Both are equally good methods and both have their own merits.
Although if you wish to invest through lump sum than you should opt for some strategies like STP.
Systematic transfer plan (STP) – you deposit a lump sum amount in a liquid (safe) fund and transfer a small amount of money weekly ,monthly or any other mode to the targeted equity fund.
The benefits of mutual funds
Low cost, professional management, transparency, liquidity and high inflation adjusted returns.
How to choose the Fund
Ideally you should diversify the portfolio so that the risk can be minimized.
If duration is long then higher equity allocation can be given or otherwise you can choose debt mutual funds for your investments.
How to invest in mutual funds
You can invest in mutual funds through two modes
offline or online
Offline mode:
If you are the first time investor in mutual funds then you have to deposit common application form of the mutual fund along with duly filled KYC form and a cheque.
If you wish to start a SIP in the same fund then additional SIP form has to be submitted with above mentioned forms.
You can deposit these forms in the R & T office, AMC office itself or through service provider centre declared by the AMC. Alternatively you can invest through Mutual Fund Distributors also.
Online mode
You can take the following steps for investing through online mode.
- Visit to the AMC website
- Click on the investor login and create your user ID and password.
- Register yourself.
- Invest your money or start SIP.
Conclusion
Any above said plans can be the best child education plan for you.
This is because the best child education plan depends on your requirement, your risk profile and your choice.
However mutual funds offer the highest rate of return among all which can give inflation beating Returns.
