- Date : 23/11/2021
- Read: 4 mins
Insurance products and mutual funds helping parents meet their goals.
The rising cost of education, right from pre-primary, secondary, graduation to post-grad, has made saving for their child’s education a top goal for Indian parents. Coupled with their desire to send them to the best schools with international curriculums, education is taking precedence over other life goals such as travel, wedding planning of their children, retirement and more, revealed the Future Fearless survey conducted by Ageas Federal Life Insurance and YouGov India.
Saving for their children's education and future tops the priority list for parents at 64%. This is neck and neck with saving for medical emergencies at 65%. Creating long-term wealth for the family is at 54% and building an emergency fund at 41%.
Moreover, the COVID-19 crisis has jolted parents and pushed them to proactively safeguard their children’s future. The survey further said that insurance products have emerged to be the preferred choice for saving and investment for parents. This is because they consider insurance products to be low-risk and trust them to help them meet their future goals.
Another survey conducted by Scripbox stated that Indian parents believe that the best way they can provide for their children and protect their future is by providing quality education. This is true for people residing in both metro and non-metro cities of India. The study revealed that the current pandemic has made creating a contingency fund the most important short-term goal while investing in children’s education is the top long-term goal for parents. Education at 46% takes priority over other goals such as retirement at 43%, healthcare at 37% and owning a home at 29%.
Investment avenues to fund education
The Future Fearless study revealed that Indian parents are putting their faith in life insurance products. More than two-thirds of the parents that were surveyed shared that they have invested in life insurance solutions such as Unit Linked Insurance Plans (ULIPs), moneyback plans and endowment plans to ensure the best possible education for their children. It also stated that Indian parents are practising goal-based investing, i.e. they are investing with the sole purpose of meeting educational needs.
The rate of education inflation in India is around 11-12%. This means that an Ivy League course that costs Rs 1 crore today will cost about Rs 4-5 crore 15 years down the line. Parents, therefore, need to create a portfolio of assets that will allow them to consistently generate appropriate returns while managing long-term economic risks.
On the low-risk spectrum, parents can consider PPFs and Recurring Deposits where they can make small, consistent deposits till maturity. For a girl child, parents can additionally invest in the Sukanya Samriddhi Yojana, where the interest income is free from tax and investments are deductible under Section 80C.
To match up with the inflation levels, parents should consider an equity component based on time till maturity. The risk and volatility tend to average out over the long-term for bluechip stocks, equity funds, ULIPs, etc. and can deliver returns in double digits.
It is suggested that parents should start investing as early as possible and enjoy the fruits of compounding. With time on their side, they should start a Systematic Investment Plan (SIP) in an equity mutual fund wherein they invest in a disciplined manner every month and allow it to accumulate gains over a few years. This will help achieve the target amount easily. It says that once parents are closer to needing the money, they can move the corpus accumulated to a debt fund to ensure the safety of the capital.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.