As responsible parents, you desire to open the world of opportunities for your child. A good education is one such opportunity. A good education can become a foundation for a successful career. And, a successful career can translate into a good life – for your child as well as you. You can retire happily that your child is well-settled in his or her life and your child is content that s/he is leading a good life.
What more could you probably ask for? A huge financial corpus, perhaps. Why? Because, education is an opportunity that comes with a price tag. With education becoming dearer with every passing year, parents are getting more worked up about the humongous education expenditure to be met in the future. A survey conducted by Assocham revealed that the tuition fee and other expenses have gone up by 150% in the last ten years.
Investing is the Key
Given that education expenses of your child forms a major chunk of expenditure for almost 18-20 years of your earning life, it is advisable to allocate a portion of your investment exclusively toward these expenses.
The key is to adopt a methodical approach towards the investment. You should keep a well-diversified portfolio of investment – a healthy mix of of equity and debt funds. This would help you to generate cash inflow along with good returns to meet the expenses pertaining to the key educational milestones of your child. At the same time, your portfolio should also comprise a protection plan so that the future of your child is secured in the event of your unfortunate death.
Investing Right Also Matters
The child education insurance plans are good for investment to support child’s education expenses. They ensure that your child continues to receive uninterrupted and quality education in two ways:
- You have sufficient funds to meet your child’s key educational milestones.
- It protects your child against the unfortunate event of your demise. S/he will get the payouts from the plan till the end of the term of the plan, even after you are not around.
How to Choose a Child Plan
- Has a long term horizon
Since you need funds at regular intervals for your child’s education over a period 18 – 20 years, choose a plan that has a long term horizon. It will systematically help you to pool your funds and accumulate a big corpus for the key educational milestones.
- Gives premium waivers
Just imagine your family receiving a notice after the unfortunate event of your death for premium payment or that the policy has been terminated! Does that mean that your child’s education gets hampered? To avoid such a situation, select a child education plan that offers the benefit of premium waiver in case of the policyholder’s death. The policy would continue, so would the payouts towards your child’s expenses.
- Offers good returns
A child plan should give your investment funds too choose from and earn returns on them based on your age, risk appetite, life stage and financial goals. Traditional investments like fixed and recurring deposits are safe, but the returns are quite low. With inflation eating out of the yield, the effective returns hardly come to 4%-5%. A market-lined plan would make a sound investment for the best long term returns. For instance, you have an option to make an investment in different asset classes such as equity, debt or balanced funds in child plan such as ICICI Pru Smart Kid Plan. In this plan, equities give good returns in the long run, thereby ensuring the growth of your investment. Whereas, debt funds give steady returns without eroding your capital. As per your financial planning, you can transfer from one fund to another to get optimum returns on your investment. This way, you have a control over your investment.
- Covers life too
Life is uncertain. Unfortunate events can strike anytime, anywhere. It is a scary thought for any parent to think about his child’s future after his death. However, you could save yourself from this worry if you take a child plan that covers your life too. A child plan with an insurance component will not only protect your child against ill-fated circumstances, but also prevent the financial burden of his or her education falling on your spouse or other family members.
- Gives tax benefits
The tax saved on your investment for a child’s education can be further reinvested. So, choose a plan that offers maximum tax benefits. The child plans based on the concept of ULIPs could meet your tax saving goals adequately. There is an exemption up to Rs 1.5 lakh from total deductible income under Section 80C. The maturity, death, capital gain and surrender benefits on such plans are exempted from total deductible income under Section 10(10D).
Education is the cornerstone for your child’s good life and ensure that you live a stress – free life in your salt – pepper hair days. Let not the lack of finances become barrier to your child’s ambitious flight when the time comes. Be a responsible parent and start investing today!