In the inflationary economy of India, you should keep your money growing through various investment options like Fixed Deposit for child, PPF, Mutual funds and so on. However, lack of long-term vision and suitable investment avenues could keep you away from proper planning and preparation for your child's education.
Your child’s education will be divided into three apparent phases: Primary-Secondary Education, Higher Secondary Education, and College Education.
First Phase: Primary-Secondary Education
This phase is till your child attains the age of 15 years and until he or she completes Class 10. During this phase, parents can generally cover the fees of school and tuition from their salary. As a percentage of total education fees, this phase has minimum expenses. Hence every parent should aim to save an additional amount for their child's college education right from this phase. You can invest in Fixed Deposit to start accumulating these funds. Ideally, you should make FD with a tenor of three to five years with a cumulative option and consider renewing till your child reaches college education.
Company offer better return on Fixed deposit, with highest safety rating of MAAA from CRISIL. Additionally, it gives you a higher interest rate when you renew your Fixed Deposit. You can use Fixed Deposit interest calculator to decide maturity amount of your today’s investment after ten years.
Second Phase: Higher Secondary Education
This phase is crucial for deciding the direction of your child’s education like selecting science or commerce stream. Additionally, private coaching for board exams and entrance exams will also need a sizable corpus. However, this corpus should still be manageable from your current income like salary. You should continue to save for the child’s college education by starting FDs with a maturity period of two to three years.
Third Phase: College Education
College education is the most important phase of the child's education to decide his career. It is also the most expensive phase of your child's education. You may utilize the savings you might have collected in the past 10 to 15 years. However, if you need extra funds for this and if you are still earning regular income like salary, you can consider applying for a small loan. You can avail education loans or even avail loans against your fixed deposits.
How to Decide Saving Amount in Each Phase?
To decide the exact saving amount in each phase, first, you will need to know the future value of money. You can use online calculators available for this purpose. You can consider the inflation rate of about 15% for education expenses.
In the next stage, you can use FD calculator to decide maturity value of your FD investment, based on your investment amount, FD interest rate and tenure. You should modify investment value until you can reach your target of desired maturity value. In short, in terms of expenses, you can arrive target value by using a calculator called future value of money. You have to match this amount by regular investment every year.
Mutual Funds
If you are an early investor and have more than ten years before your child takes admission in college, consider equity investing. You can invest in equity mutual funds through monthly SIP (Systematic Investment Planning). Make sure, you have other funds available in hand, to meet an emergency. Because, if you try to utilize mutual fund investment in the early years of your investment, you may not get desired returns.
PPF (Public Provident Fund) Account
You can consider opening minor PPF account in your child's name. The earlier you open the account, better the corpus at maturity. However, remember that you cannot access this fund before your child attains the age of 18 years. You can invest only surplus money which you may not need in the near future. The objective of this fund is to give a sizeable corpus to your child. You can take tax advantage while investing in your child's PPF account, subject to overall limit and rules of income tax. You can consult your financial planner in this regard.
Your child’s education will be divided into three apparent phases: Primary-Secondary Education, Higher Secondary Education, and College Education.
First Phase: Primary-Secondary Education
This phase is till your child attains the age of 15 years and until he or she completes Class 10. During this phase, parents can generally cover the fees of school and tuition from their salary. As a percentage of total education fees, this phase has minimum expenses. Hence every parent should aim to save an additional amount for their child's college education right from this phase. You can invest in Fixed Deposit to start accumulating these funds. Ideally, you should make FD with a tenor of three to five years with a cumulative option and consider renewing till your child reaches college education.
Company offer better return on Fixed deposit, with highest safety rating of MAAA from CRISIL. Additionally, it gives you a higher interest rate when you renew your Fixed Deposit. You can use Fixed Deposit interest calculator to decide maturity amount of your today’s investment after ten years.
Second Phase: Higher Secondary Education
This phase is crucial for deciding the direction of your child’s education like selecting science or commerce stream. Additionally, private coaching for board exams and entrance exams will also need a sizable corpus. However, this corpus should still be manageable from your current income like salary. You should continue to save for the child’s college education by starting FDs with a maturity period of two to three years.
Third Phase: College Education
College education is the most important phase of the child's education to decide his career. It is also the most expensive phase of your child's education. You may utilize the savings you might have collected in the past 10 to 15 years. However, if you need extra funds for this and if you are still earning regular income like salary, you can consider applying for a small loan. You can avail education loans or even avail loans against your fixed deposits.
How to Decide Saving Amount in Each Phase?
To decide the exact saving amount in each phase, first, you will need to know the future value of money. You can use online calculators available for this purpose. You can consider the inflation rate of about 15% for education expenses.
In the next stage, you can use FD calculator to decide maturity value of your FD investment, based on your investment amount, FD interest rate and tenure. You should modify investment value until you can reach your target of desired maturity value. In short, in terms of expenses, you can arrive target value by using a calculator called future value of money. You have to match this amount by regular investment every year.
Mutual Funds
If you are an early investor and have more than ten years before your child takes admission in college, consider equity investing. You can invest in equity mutual funds through monthly SIP (Systematic Investment Planning). Make sure, you have other funds available in hand, to meet an emergency. Because, if you try to utilize mutual fund investment in the early years of your investment, you may not get desired returns.
PPF (Public Provident Fund) Account
You can consider opening minor PPF account in your child's name. The earlier you open the account, better the corpus at maturity. However, remember that you cannot access this fund before your child attains the age of 18 years. You can invest only surplus money which you may not need in the near future. The objective of this fund is to give a sizeable corpus to your child. You can take tax advantage while investing in your child's PPF account, subject to overall limit and rules of income tax. You can consult your financial planner in this regard.
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