5 Investment Options to Plan Your Child's Higher Education
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Planning for Your Child's Higher Education? Explore These Investment Options

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  • 26th Apr 2022
  • 2,655

Planning for Your Child's Higher Education? Explore These Investment Options

With the rising expense of education, it is more crucial than ever to begin saving as soon as possible to reduce your financial load in the future. Student finance for higher education will undoubtedly be costly, and thus it is very important to start investing at the right place at the right time. But before you take this step, your investment objectives must be crystal clear to you. To arrive at a good financial objective, ask yourself the following questions:

  • How much risk can you take with your assets based on your risk appetite?
  • Investment horizon– how long can you keep your money locked in?
  • What is the maximum amount you can invest in a mutual fund?
  • Mode of investment– whether you choose to invest the entire amount at once (which would result in a lump sum investment for a year) or whether you want to invest a small amount at regular intervals (through SIPs)

Now that you’ve established your investment goal and have a higher education finance plan, you can build a substantial corpus by investing in the following:

Mutual Funds Investments

Pooling money professionally, managed by a Fund Manager, is called a mutual fund. There are three broad categories for a mutual fund: equity, debt, and hybrid. For instance, assume you have a one-year-old child, and your investment horizon is likely to fall between 10-15 years, depending on your investment aim. As a result, you should consider investing in equity-oriented schemes for achieving your financial goal for supporting your child’s education. Since this is a long-term approach, the returns will be good enough to help you build that corpus.

You might want to keep your money in an equity fund for a long period. However, after a few years of making such an investment, you can consider moving your investments to liquid funds to prevent significant volatility and assure liquidity based on your future needs.

Gold Exchange Traded Fund (GTF)

Indians have the most confidence in gold investments regardless of all available investment possibilities. On the other hand, physical gold carries a higher risk of purity and comes with additional costs, such as producing jewellery, among other things. Furthermore, dealing with actual gold entails a great deal of effort and price in the form of locker purchases, etc. Gold ETFs, like stocks, are traded on the National Stock Exchange and may be bought and sold at market rates. Such funds are passive assets whose value is tied to the gold price in international markets because they exclusively invest in gold bullions.

Unit-linked assurance plan (ULIP)

Due to fund alternatives that provide steady returns, low levels of risk, or both, ULIP plans have become more popular. As a result, many insurance companies, banks, and financial organisations offer these plans in India, allowing policy purchasers a variety of alternatives to select from. Your money will generate high returns throughout the vesting period, assuring good ROI on the investments and support your little one’s educational costs in the future.

Term Deposits

Like fixed or recurring deposits, term deposits have traditionally been favored by a wide section of Indian investors due to the low risk they entail. Although they give low yields (about 6.5 percent to 7.5 percent for big banks), they are a low-risk investment choice. These deposits are made for a specific time and have limited liquidity. Furthermore, banks impose fines on investors who make early withdrawals. The values on such investments over ₹10,000 per year is taxable.

SSY - A Government policy

Several government-sponsored saving plans also assist investors in accumulating adequate funds for higher education of students. For example, Sukanya Samriddhi Yojana is a government-sponsored savings plan that works well for conservative investors looking to put money towards their daughter’s education. SSY is a low-risk investment that can save you up to ₹1.5 lakh in taxes under Section 80C of the Income Tax Act. However, if you have a girl kid, you are only entitled to invest in the plan. Furthermore, under this arrangement, a family can only open a maximum of two accounts.

While inflation might go down near zero, a key expenditure for the ordinary Indian household is rapidly increasing. One of the largest monetary outflows that households must budget for is their children’s education, and thus, understanding higher education finance is necessary. The key to financial support for higher education is investments, so start investing today to secure your child’s tomorrow.

- A Consumer Education Initiative series by Kotak Life

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