Saving and Investment Tips for Higher Education of Children

Why Save and Invest For Higher Education?
 

Higher education costs have increased in India by 10-12% between 2012-20.^[2] For example, a four-year professional course that costed  ₹7,50,000 in 2022 could cost ₹19,45,310 in 2032^[2]. This escalation makes it critical for parents to have a financial strategy to secure their child’s future.

Saving and investing early ensures that parents can meet these rising expenses without financial strain. By following higher education savings tips, parents can prepare adequately for their child’s academic aspirations.

Here’s a step-by-step guide on how you can save for your child's higher education
 

Step 1: Start Early to Maximize Benefits
 

One of the most effective saving tips for a child's higher education is to start early. Early planni    ng allows parents to leverage the power of compounding, which significantly enhances the growth of investments over time. ^[1]
 

Benefits of Starting Early:

Compounding Effect:
 

Investments grow exponentially over time due to reinvested returns.
 

Flexible Investment Options:

Parents may benefit from  return potential of instruments like equity funds if they start early.

Reduced Monthly Savings Burden:

Starting early reduces the monthly amount needed to meet the final goal.

Step 2: Set Clear Financial Goals
 

Defining specific, realistic goals is critical when saving for a child's higher education. Begin by estimating the cost of the desired course and account for inflation. ^[1]

Key Steps to Setting Goals:
 

1. Research Education Costs:

Understand the current costs of courses like medicine, engineering, or MBA programs etc, whether in India or abroad.

2. Account for Inflation:
 

Use a realistic inflation rate to project future expenses.

3. Establish a Timeline:

Calculate how many years you have before your child enters college and create a savings plan accordingly.

Step 3: Diversify Investments for Stability
 

Choosing the right mix of investment options ensures your savings grow steadily and safely. A diversified portfolio mitigates risk and ensures stability.

Systematic Investment Plans (SIPs):
 

Equity SIPs:
 

Ideal for long-term goals (10-15 years). They involve some risk but can provide returns that outpace inflation.
 

Debt SIPs:
 

Best for medium-term goals, with lower risks and more stability.

1. Public Provident Fund (PPF):
 

• A government-backed scheme offering compounded returns and tax benefits under Section 80C (in case of old tax regime).
  

2. Sukanya Samriddhi Yojana (SSY):
 

• Specifically designed for girl children below the age of 10 years, SSY offers  interest rates and tax-free returns.

3. Child Insurance Plans:
 

• These plans combine savings and life insurance, ensuring the child’s future remains secure even in adverse circumstances.

Step 4: Build a Tax-Efficient Portfolio
 

Tax efficiency plays a vital role in maximizing your savings for higher education. Utilize tax-saving instruments to reduce your taxable income and enhance your investment growth.

Step 5: Use Insurance to Protect the Education Fund
 

A secure financial plan includes protection against unforeseen circumstances. Term insurance or child-specific plans ensure that your child’s education fund remains intact.

Recommended Insurance Options:

1. Term Insurance:
 

Provides financial security to your family in case of unforeseen events.

2. Child Insurance Plans:
 

These Child plans ensure that the education fund is sustained even if the life assured is no longer around. ^[5]
 

Step 6: Monitor and Adjust Regularly

Regularly reviewing and adjusting your investment portfolio ensures it remains aligned with your goals and changing market conditions. ^[4]

How to Monitor Investments:
 

• Review your portfolio’s performance annually.
• Adjust your investment mix based on current financial needs and inflation trends.
• Use financial tools or consult experts to stay updated.

Step 7: Avoid Common Pitfalls
 

While planning savings for child's higher education, avoid the following mistakes:
 

Delaying Savings:
 

Starting late increases the financial burden and reduces potential returns. ^[6]
 

Withdrawing Prematurely:
 

Avoid using the education fund for non-emergency expenses.
 

Relying Solely on Loans:
 

Education loans should complement, not replace, savings.

Conclusion
 

Saving and investing for higher education requires a well-planned strategy that combines early preparation, diversification, and consistent monitoring. By following these saving tips for a child's higher education, parents can build a secure education fund, empowering their children to achieve their academic dreams without financial stress.

Take proactive steps today to secure your child’s future and create an education fund that grows steadily over time. A disciplined approach to savings ensures that your child’s aspirations become a reality, no matter the challenges. ^[3]

FAQs

1. How much should I save monthly for my child’s higher education?
 

The amount depends on factors like the target corpus, time horizon, and expected inflation. You need to calculate the amount needed for the education of your child as per their career choice and then create a plan that suits your budget and helps you build a sufficient corpus.

2. What are the best investment options for child's higher education?
 

Popular options include equity SIPs, PPF and SSY. Each has unique benefits, and a diversified portfolio is recommended.