Education has become a costly affair in India. For instance, a seat in the Indian Institute of Management (IIM), Ahmedabad, would cost Rs 19.5 lakh in 2018! That is four times more than what the business school charged students just a decade back. This is an indication of how the cost of education has spiraled alarmingly in recent years. And the harsh truth is that it will continue to escalate in coming years.
Here’s how you can meet your child’s higher education expenses when the time comes.
Evolving career options for students
Until recently, a majority of students in the country opted for either engineering, medicine or commerce. But now, students have been choosing their career based on their passion and interest. Shifting patterns mean that professional courses have become popular.
But, they cost a lot of money. Hence, wealth management has become important. Investing for your child’s future well before time has become the norm of the day.
Proper financial planning
The first step is to set clear, well-defined goals with a target.
For instance, if your daughter has just started her primary education, you have around 12 years to amass roughly Rs 30 lakh. The assumption of Rs 30 lakh college fees is based on the rate at which they have increased in recent years.
This is why investing is better than merely saving money. Keeping aside Rs 30 lakh in a locker or a savings account is an option. But, investment provides high returns. Those ways, you put in a comparatively lesser amount of cash to meet your financial target. Investment, unlike stashing the money in your house, helps your money grow.
Invest to keep up with the changing system
Higher education has one of the highest inflation rates in the country, according to experts. This means you have to invest to keep up with rapid changes in the economy.
Indians have traditionally saved their money in fixed deposits (FDs) and savings account. But, the financial world has evolved. There are several other investment options that now provide higher returns.
If you have to a long-term goal, it is best to put around 80% of the capital in financial assets that have the potential to deliver rich returns. That’s the reason why investing in equity mutual funds and stocks have gained popularity in recent years.
A few people may advise you to avoid this route because equity funds and stocks are considered risky. However, long-term investments usually absorb ups and downs in the market that can occur from time to time.
The fact that stocks and equity funds provide higher returns is backed by data. The Sensex and equity funds grew by 13.7% and 14.9% since October 1986. In comparison, FDs saw 8.7% growth and savings deposits rose by a meager 3.8%.
The key is to start investing early. That way, you can have ample time to reach your financial goals. For instance, if you have a six-year-old child, it is a good idea to start investing in equity funds or stocks right away. You will have more than a decade to reach your financial goals. Historical data suggest that equity funds and stocks can ride over market volatility to provide decent returns over a long period of time.
You can watch this interesting video by Franklin Templeton to understand Equity Mutual Funds better.