Children’s education no child’s play.
Just as you monitor the growth of your child, you should also bestow attention to the investments. In both cases, you shouldn’t wait until they mature.
As a parent you want to give the best education to your children and ensure a secure future for them. Indians particularly view the education of their children as a key priority in their lives, according to a survey in 25 countries by Aviva Life Insurance.
We all know that the cost of education has been rising steeply. In the past decade, it has skyrocketed. Many parents these days do not think twice about sending their children abroad to study, hoping that an international exposure will give them a heads-up in life.
Even in India, international schools charge anywhere from Rs.2.0 lakh to Rs. 2.5 lakh a year. And bachelor’s and master’s degrees in professional courses cost the sky.
If your son or daughter is in a four-year engineering course, you know you have to shell out Rs.10 lakh if you opt for a management seat. And a medical seal can easily set you back by Rs. 75 lakh.
Yet, these need not be out of your range, if you plan well.
To do this, you should start early, in fact, as soon as your child is born! That’s to take advantage of the power of compounding.The current engineering cost of Rs 10 lakh will be Rs 33.8 lakh after 18 years if inflation continues to hover around 7 per cent.To reach the sum if you put away just Rs.4,500 for 18 years (216 months), and if it earns 12% a year, you can easily pay the Rs. 34 lakh for your child’s college education.
But how do you earn 12% all the time? That’s why you should start early, with a mix of debt, equity(direct and mutual fund) and other assets (such as real-estate and gold) to build this corpus. For debt, invest in PPF,recurring deposits,income fund and bonds, with cumulative payout maturing in time with the goals. In the early days, the emphasis will be more on equity, but as the deadline approaches, debt will be the choice.
When considering children’s plans, most people think of insurance products. Traditional insurance products, such as endowment products, usually generate an internal rate of return of only 5.5-6%. You usually also get a terminal bonus, which will boost your return by 0.5 percentage point. Unit Linked Insurance Plan products combine debt and equity.
Along with building a corpus, you must also consider whether you wish to take an insurance cover for the child or for the parents. Covering your child’s life may offer only limited solace, as your loss in the event of anything unfortunate happening is more emotional than financial. Therefore, first cover the wage earner in the family before insuring the life of the child.If the breadwinner passes away, the family will get a lump sum, which can be used for the child’s education.
If you need the funds over a period of time, you can even split the policies to match your requirements.
If you have invested in ULIP and due to favourable market conditions, you got a better return than projected, then sweep the profits into debt schemes to protect the money.
When you are close to the goal, move the entire savings to debt plans to avoid any loss due to wild swings in the market.
You should adopt a similar approach to volatile assets, such as real estate. These are illiquid investments. Much ahead of the time you require the money, you should liquidate such investments.
Talk to your financial planner today about how you should draw up your investment strategy. This way, you will have not just the money but also peace of mind that you will achieve your goal.
To know more write to info@myassetsconsolidation.com or suresh@myassetsconsolidation.com.