Can you remember how much you had paid for your own higher education? Though your memories of your graduation ceremony may seem recent, you must admit that a lot will change by the time your child applies to a college or university for higher education. The biggest roadblock to pursuing higher education is the fees that educational institutions now charge. The average cost of attending a college has gone up manifold with the total fees for college, hostel, tuition and books having surpassed the inflation rate. For a traditional college or university course education, the fees charged have been going up twice the rate of inflation. The situation is set to become more precarious in the light of current events where inflation has rocked business sentiments and has brought down many countries’ economies. This implies that you must accumulate a huge corpus to be able to afford your child’s dream of seeking higher education.
Not many parents realize how a proper allocation system can help them collect the necessary amount needed to put their wards through colleges and universities. Apart from deciding how to allocate their earnings to create wealth, parents must have the temperament to continue their investments for a prolonged period. Investing with a long-time horizon helps them to benefit from the compounding effect.
Sukanya Samriddhi Scheme
To start with, parents with daughters can start putting a part of their earnings every month into the Sukanya Samriddhi Scheme (SSS) wherein they can invest up to ₹1.5 lakh during a financial year. Parents can open this account in their daughter’s name till she turns 10 years old. However, they can open only one such account in the girl’s name in either a post office or an authorized bank. They can withdraw money from the account to pay for the expenses of their daughter’s higher education. Since the money in the account can also be transferred, parents can use this facility to pay for their daughter’s education directly from the corpus collected. Both the interest earned and the corpus collected are exempted from taxation under the Income Tax Act, 1961.
Public Provident Fund
The Public Provident Fund (PPF) scheme, 2019 allows parents to open a PPF account in the name of their minor child. There is no restriction on any of the parents or both the parents contributing to the child’s PPF account. Currently, the interest rate offered on PPF investments is 7.1 per cent every year. Parents do not have to worry regarding the taxability factor as both the interest and the returns earned are not taxable under Income Tax.
Investing in equity markets can be risky though continued investments over a long period can help one create the much-desired corpus. However, some risk-averse parents may opt for solution-oriented funds that are essentially closed-ended funds with a lock-in period of five years. These funds suit best those investors intending to park their money in long-term investments. Apart, the parents investing in these funds can also save on taxes by investing in these funds.
Equity mutual funds
No one minds taking a little bit of risk considering the risk-returns rewards involved. Investing into equity funds can help parents earn in sync with the market, thus, allowing them the benefit of a large corpus after persistent investments for around 10-15 years. They can choose from large-cap, mid-cap, flexi-cap and small-cap funds. Some also resort to putting money in dividend yield funds to benefit from both dividend earnings and capital appreciation.
Child education plans
These plans combine the benefits of both investment and insurance, thus, allowing parents to the financial planning of their children’s education. While the investment aspect helps earn returns, the insurance component of the plan ensures that the child remains protected in case of the sudden demise of a parent. Some insurance companies also pay the premiums on behalf of the policyholders in their absence. The premium charges are exempt from tax, thus, allowing parents to save up to ₹46,800 in taxes under Section 80C of the Income Tax Act.
In today’s times, parents need at least a ₹30 lakh corpus to pay for their children’s higher education, especially, in professional courses like medical and engineering courses. The amount is slated to be higher if the child gets selected to pursue their studies in foreign universities. Now extrapolate the same corpus amount to understand the estimated amount that parents would need to educate their children in colleges and universities after roughly 18 years. The fees would most likely be triple what institutions are charging now. Appropriate investment planning is the need of the hour without which your dreams of giving your child the best education possible might remain unfulfilled.
Your children deserve the best education available while you deserve to see your child getting the best in life. So, start investing for your child today.