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Saving Plans to Give Children a Debt-free College Education

Saving plans empower parents to strategically accumulate funds for a debt-free college education. Leveraging this can ensure financial stability and relieve children from the burden of student loans.

  • 3,154 Views | Updated on: Mar 28, 2024

There is no better gift than the assurance of a stable future for your child. Therefore, after becoming a parent, one should begin investing in a savings plan for the child’s better future.

An education investment plan for your child’s education is a great way to build a strong foundation for their future. It is every parent’s goal to see their child’s dreams come true by providing them with the education they desire. In today is competitive world, specialized education that complements your child’s interests might help them maximize their abilities and shine! It offers them an advantage over others and helps them achieve their life’s objectives. So, it is critical to consider what kind of specialized education your child will pursue.

Investment Strategy for Child’s Savings Plan

First, make a list of specific objectives to build the right savings plan, such as the child’s desired schooling and the associated costs. This will assist you in determining how much you need to save each month and the amount you can afford after all of your usual costs have been met. You should remember that funding studies can also be done with loans. In addition, a savings plan does not have to entail sacrificing other elements of your life, such as healthcare or retirement. As you get closer to your financial goal, you should limit your stock exposure to reduce the chance of unfavourable market moves.

Different Types of Education Investment Plans for Your Child

When planning for your child’s education, you should seek a child savings plan with a maturity date corresponding to the year you need the money. The following are the four most excellent child education plans.

Unit Linked Life Insurance Plan (ULIP)

You can profit from capital market upswings by investing in a unit-linked child plan. A portion of your premium is used to protect your child’s future in unforeseen circumstances. The remainder of your investment is placed in the stock market. Depending on your risk tolerance, you can choose a mix of stocks and debt funds or hybrid funds that balance the benefits of each asset type. In addition, ULIPs can help you build an inflation-adjusted portfolio.

Public Provident Fund (PPF)

It’s a 15-year plan that can begin even under a minor’s name. With your PPF account, you can invest up to ₹1.5 lakh per year in your child’s PPF account. It is tax-free and backed by the government. The PPF offers the best tax benefits, making it a popular investment for your child’s right education investment plans.

Savings Plan

A traditional endowment policy guarantees your capital with fixed, guaranteed returns. The policy invests your money on your behalf and shares the revenues with you through bonuses and incentives, ensuring sizeable returns to handle your little one’s education costs in the near future.

Sukanya Samriddhi Yojana (SSY)

Sukanya Samriddhi Yojana is a savings scheme for female children. Because it is a government initiative, it is quite dependable, and many people consider it the finest investment plan for girls in India. As a parent, you can open an SSY account in the bank in your daughter’s name and earn a good interest rate of around 7% to 8%, subject to change. When the girl reaches the age of 21, the account will mature.

Guaranteed Money Back Plans

Planning for a child’s education involves more than just college tuition costs. The expense of schooling begins much before that point. You will need to pay for the coaching lessons at various levels and the graduation fee.

You need to pay a premium for ten years when you purchase the plan, and you earn rewards as per the policy terms. You can use these payments to cover various costs associated with your child’s education. At maturity, you will get the amount guaranteed, which can be used for education expenses.

Did You Know?

The average cost of attending college rises by 8% every year, making the financial strain daunting. A four-year private institution currently costs an average of ₹50 Lakhs. According to such figures, tuition at a private university might cost, for children born today, much over a crore per year.

The Power of Early Planning

As you often hear, “The early bird catches the worm”, the power of early planning cannot be overstated. It lays the groundwork for a secure and prosperous future, empowering individuals to achieve their long-term goals and weather life’s uncertainties with confidence.

Start Early, Save Smart

The key to building a solid foundation for a debt-free college education lies in starting early. Parents who begin saving for their child’s education during the early years can benefit from the power of compounding, allowing their investments to grow over time.

Tailoring the Savings Plan

Different saving plans cater to varying risk appetites and financial goals. Parents can choose from options like fixed deposits, mutual funds, or education-specific savings schemes to align with their preferences and financial capabilities.

Harnessing the Magic of Compounding

Early planning allows individuals to tap into the magical force of compounding. By reinvesting earnings and returns over time, even modest investments can grow exponentially, providing a substantial financial cushion in the long run.

Extended Time Horizon for Investments

Initiating investment and savings strategies early affords a longer time horizon. This extended period allows for a more gradual and less risky approach, mitigating the impact of market fluctuations and maximizing the growth potential.

Education Planning

Saving for children’s education begins the moment they are born. Early planning allows parents to accumulate funds systematically, ensuring their children have access to quality education without the burden of student loans or financial constraints.

Investing in Tomorrow, Today

In the journey to provide your children with a debt-free college education, saving plans emerge as a powerful and proactive financial strategy. Beyond the financial benefits, these plans instil a sense of security, allowing both parents and children to focus on the pursuit of knowledge and personal growth without the weight of looming debts. By embracing thoughtful savings practices and exploring tailored investment options, families can ensure that the dream of higher education remains attainable, laying the groundwork for a bright and financially secure future.

Key Takeaways

  • Starting saving plans for a child’s education early harnesses the power of compounding, allowing parents to accumulate a significant corpus over time.
  • Many saving plans offer tax benefits, such as deductions under Section 80C, providing an additional incentive for parents to plan for their child’s education.
  • This government-backed scheme not only promotes the financial well-being of the girl child but also serves as a dedicated fund for higher education and marriage expenses.
  • A reliable and time-tested option, PPF offers tax benefits and steady returns, making it a favorable choice for building a substantial corpus for educational expenses.
  • SIPs in mutual funds facilitate disciplined and regular investments, allowing parents to accumulate funds systematically over time for their child’s education.

FAQs

1

Why should I start saving early for my child’s education?

Starting early allows you to leverage the power of compounding, helping your savings grow over time. Early initiation provides a longer investment horizon, leading to a more substantial corpus for your child’s college education.

2

What are the tax benefits associated with saving education plans?

Many saving plans, such as Sukanya Samriddhi Yojana and the Public Provident Fund, offer tax benefits under Section 80C of the Income Tax Act. Exploring these options can provide additional incentives for saving for your child’s education.

3

How do I choose the right saving instrument for my child’s education?

Consider factors like risk tolerance, investment horizon, and specific goals. Options like mutual funds, Sukanya Samriddhi Yojana, and Public Provident Fund cater to diverse needs, allowing you to tailor your choice based on your preferences.

4

Is it necessary to maintain an emergency fund alongside saving for education?

Yes, having a separate emergency fund is essential. This ensures that unforeseen financial challenges do not impact your child’s education savings. An emergency fund acts as a financial safety net, providing stability during unexpected circumstances.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
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Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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