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How YOU can save up for your child's education

Last updated on: October 15, 2012 12:22 IST

How YOU can save up for your child's education

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Salil Dhawan

Providing a good quality life is an endeavour of every parent. Irrespective of financial health we are in, we look to provide best quality education and life style to our children. It is important to stress upon the very basics of investing which you, as parents, should keep in mind while investing for creating corpus for your child's education.

Start investing early

This is single most effective mantra of fulfilling all your financial goals -- not just child's education. Like any other goal, initiate a separate investment strategy for your child's education as soon as he/she is born. Initial amount may be small but if you start investing early, corpus you are looking to create will definitely be achieved, courtesy starting early.

Increase the investment amount as you go along in line with your salary increase and corpus you are looking to create for your child's education.

Courtesy: Investment-mantra.in


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Look towards equity as an investment option

Evaluate equity as an investment option for your long-term goals. Look to invest in diversified mutual funds to fulfill your long-term goals. For instance, to achieve a corpus amount of Rs 1 crore for a goal 20 years away, investing Rs 10,109 should be good enough given fund gives annual return of 12 per cent. Power of compounding works at its very best in case of long term investments like child's education. Avoid investments in sectoral/thematic funds to achieve your long-term goals. Go for equity-diversified funds from a dependable fund house.

For parents who can track equity markets closely, investing in blue chip scrips is another option as part of investment for long-term goals. Investments in market leaders in sectors such as banking and finance, pharmaceuticals, construction can multiply your returns by many folds in the long run.


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How YOU can save up for your child's education

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PPF as an investment option

For investments in debt instruments, look towards Public Provident Fund as an investment option. Tax-free returns along with 80 C benefits are some of the key features of PPF.

Regularly invest in PPF as an excellent and safe investment option for creating corpus for your child.

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How YOU can save up for your child's education

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Take into consideration inflation effect while deciding on the corpus amount

Take into consideration the effect of inflation while reaching the corpus you will need to create for your child's education. Rs 1 crore may not mean lot of money 20 years down the line, courtesy inflation effect.

Cost of education is bound to increase much higher than inflation resulting in higher cost of education by every passing year. The mistake of undermining cost of higher education 10 o 20 years from now is the most basic mistakes made by parents.


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How YOU can save up for your child's education

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Shift your corpus to safer instruments as you approach your goal

If you have used equities as an investment option to create corpus for your child, initiate a shift from equity component to debt 2 to 3 years before goal is to be fulfilled. Since goal can't be postponed and if equity doesn't do well that particular year, you will be left in lurch as to withdraw corpus amount at much lesser amount. So a sensible approach will be to start shifting corpus to safer avenues couple of years before goal time line.


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How YOU can save up for your child's education

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ULIP as an investment vehicle

If you as an investor are willing to stay put in ULIP for the long term and are willing to withstand high charges in the initial years, ULIP should work well for you. Make sure you don't surrender policy mid way losing out crucial investment years in the process.

Understand the product well and then invest. If you are not willing to pay the stipulated charges in ULIP in initial years, go with a combination of a diversified mutual fund and term plan.


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Child plans may not be the best one

Child plans offered by various insurance companies may not be the best option. Don't just go by the name of the product. Understand the product inside out and its pros and cons before investing. Make sure you don't fall prey to agents selling expensive policies with low returns over the long run.

Bottom line

Investment for your child's education is a long process and a simple investment strategy can be fruitful in the long run. Stay clear of complex investment products which you don't understand. Be disciplined in your investments all throughout the tenure to reap rich benefits right in the end.


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