How to invest for your child's education

By Kartik Jhaveri

Honing a young mind in today's times is an expensive affair!

In fact, many parents start saving for their child's education, very early. Mr Sharma did the same, but unfortunately for him, the money he was saving was being spent on provisions and household expenses! As soon as he discovered this, he changed his strategy.

Sharma's game plan

First, he planned to buy a life insurance policy. He had two options: a Unit Linked Insurance Plan (ULIP) or a traditional moneyback policy.

A ULIP, which has maximum allocation in equities, is not a bad option. But a traditional moneyback policy may not be a good idea. Here's why.

i. Inadequate returns: The inflation rate for funding education is far higher than the rate of returns provided by traditional policies. Hence, investing in these makes no sense. 

ii. High cost: Moneyback policies are expensive! This is because the company provides a risk cover AND a timely cash flow.

Modus operandi
It is now clear that Sharma is putting money in a landmine that is more likely to blow up in his face. So, what can he do? He could look at three other sources of funding as well:

i. Current income or existing savings.
ii. Taking a loan.

iii. His kid could take an education loan.

 

Let's focus on point (i) as the other two are self-explanatory. Use your current income to save as much as you can for your child.

1. Calculate how much you'd require for your child's future education. Accordingly, save some money every month. Make sure that you can alter the quantum of cashflows at will, if needed.

2. Be flexible towards different investment classes. Focus on growing your wealth aggressively even if it means taking some risk.

 

Now, if Sharma creates a budget keeping these points in mind, his child will be on the road to a great education, soon!

 

Kartik Jhaveri, an expert in Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com .

 

Disclaimer: The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.