Planning for education cost

[Kalyan]

Planning for education cost

Fin planning for child's education at early stage helps in generating funds.

If there is an expenditure which needs to be met, irrespective of the capabilities of the individual, it is probably the education expenditure. This head of expenditure has been gaining importance over the years for every family and has become an integral component of financial planning .

The only worrying part of this expense is that it has been gaining strength at an uncomfortable pace and hence poses a big challenge to arrive at its future cost.

However, that can't be an excuse for parents. In fact, thanks to the growing awareness on the need to invest in education, every parent has begun to allocate a portion of earnings towards this expense.



source : economic times

[Kalyan]

The funding of education has different options and in recent times, loans have become an important source for many. Unlike in the past, a student or parent need not rely purely on savings for funding the educational expenditure.

Education loans have become a popular option for many, though basic education continues to be devoid of such facility. So, those pursuing professional or post-graduation courses can rely on bank finance for funding education.

Besides offering funding, an education loan also has other benefits such as tax relief on the interest component which can come in handy for the borrower. The relief is available under Section 80E of the Income Tax Act.

The good thing about education loans is that they are fairly less price-sensitive with respect to their interest rates as the government pressure on banks keeps the rates from moving up drastically.





source : economic times

[Kalyan]

A loan need not be an option if a parent plans in advance to take care of the child's education costs.

For instance, if the investment process begins at an early stage, the parents will have a minimum of a decade in investment tenure at their disposal.

Such duration also allows the investor to be aggressive with his choice of product as risk gets minimised over a long investment tenure.

So, for those with a minimum investment tenure of 10 years, a systematic investment plan (SIP) or a lump sum investment in an equity fund can be the choice as this offers scope for capital appreciation.




source : economic times

[Kalyan]

The advantage with a SIP is that it can be built with small contributions on a monthly basis. If a beginning is made with a smaller sum, the investor has the option of increasing the monthly contributions at a later date, depending on his comfort.

Since a SIP also offers plenty of flexibility (in terms of discontinuation or withdrawal), it should be the first choice as an investment option.

The choice of fund is a crucial factor for long-term planning and a diversified fund or a large-cap focused fund is a better option when compared with thematic or sector-specific funds.

Wellmanaged mid-cap focused funds too can be another option but they carry higher risk when compared with large-cap funds.





source : economic times

[Kalyan]

Another popular option for education funding has been the children's insurance plan. But, this can be effective when thought of at an early stage only.

Child insurance plans offer life cover besides returns, but you should look at it for a minimum premium term of 10 years.

Only with a longterm insurance payment mode, it can be cost-effective and can be more efficient than a mutual fund. Another built-in advantage with insurance is that it offers regular cash flows with milestones which is not the case with other investment options.

Irrespective of the choice of product, an early stage planning is the best option for parents to fund education of their children and options such as education loans can be considered only if necessary.



source : economic times