- Date : 22/05/2021
- Read: 4 mins
These long-term and short-term investment avenues can help you accumulate a sizeable corpus for your child’s education.
There has been a considerable rise in the cost of education in the last decade. There was a time when the higher education sector was monopolised by government universities, but over time many private institutions joined in and raised the bar in several ways. Along with better infrastructure and ambience, these private players have also increased the fees and boarding costs for students.
As a parent, the burden of covering these costs rests on you. So, it is important to plan well ahead and save enough to meet your child’s expenses by investing optimally. Please note that the right instrument primarily depends on your time horizon and risk appetite. Read on for some investment instruments you can turn to if you are planning to save for your child’s higher education costs:
Long-term investment options
- Unit Linked Insurance Plans (ULIPs): A ULIP can club investment and insurance under one policy and work as an ideal long-term investment option. They also offer a life cover, so your child will be financially protected even in the unfortunate event of your demise. Moreover, ULIPs offer equity, debt, and balanced funds to suit all risk types. But keep in mind that ULIPs are long-term products and offer high returns only if you invest in them for a longer tenure. Therefore, pick this option if your child is young, so you have plenty of time to build a corpus.
- Public Provident Fund (PPF): A PPF also works as a long-term investment plan. Any parent can open a PPF for a child. The account is managed by the parent till the child turns 18, after which the account can be transferred to the child. A PPF account can offer an average return of 7%, which can help you grow your savings. Moreover, you can withdraw the money before maturity for qualified expenses such as higher education.
- Sukanya Samriddhi Yojana (SSY): This is a government savings scheme that can help the parents of a girl child. The account matures when the child turns 21 or when she gets married after the age of 18. This is also a long-term investment option and is suitable only if you start putting money in the account when your daughter is very young.
- Equity Mutual Funds: If you have a large time horizon to accumulate funds for your child’s higher education expenses, consider investing in equity mutual funds. Equity mutual funds can offer a high return over a long investment term. Moreover, you can pick from large-cap, small-cap, or mid-cap options in line with your preferences.
Related: How to plan for child education expenses?
Short-and medium-term investment options
- Aggressive hybrid funds: Mutual funds can be a great option if you have a short time horizon. Depending on how soon you need the money, you can invest in different types of mutual funds. For instance, aggressive hybrid funds can be a good choice if your child starts college in less than three years. Do note that these are high-risk funds, so they may not be suitable for someone with a low appetite for risk.
- Gold funds: A gold fund is a type of mutual fund that directly or indirectly invests your money in gold reserves. Gold funds are regulated by the Securities and Exchange Board of India (SEBI) and therefore make for a safe option for education savings. Moreover, these funds are highly liquid, so you can withdraw them easily. The returns can also help you beat inflation.
- Recurring Deposit (RD): An RD can be a safe short term investment option for parents. The minimum investment tenure for an RD can be as short as six months. The returns are higher than a savings account. And you can open an RD account with any bank. The process is simple and straightforward.
Related: How to finance your child’s higher studies with education loan
Apart from the investment options mentioned above, you can also consider a student loan. However, it may still be advisable to invest your money optimally, so that you can use your investment returns to repay the student loan interest without hassles.
Last words
It is essential to pick a child investment plan that suits your goals and time horizon, or else your child may end up compromising on their dreams and goals. Also, if you have a low risk appetite, it is advisable to start saving as soon as your child is born. This way, you will have a long investment term and will be able to benefit from the power of compounding. Starting late can put a lot of pressure on you, and also increase volatility and risk on your portfolio.
Find out how prepared you are to meet your child’s education cost.
