So, inflation seems to be approaching zero, but the highest expense, higher education, for the average household in India seems to be rising on a daily basis.
While higher education is already a major expense, statistics place the growth of higher education at an average of 11 cents per annum. For a family, the most significant expenses and best investments to make are their children’s education and health insurance (such as ULIP). The best way to finance a child’s education is through proper planning and achild investment plan. For example, the price of a typical four-year engineering degree is approximately Rs 6 lakh. According to some statistics, this price could reach almost Rs25 lakh in only seven years.
Why is the cost of education so high, and why is it expected to continue rising?
The most apparent reason for this high price of education is the number of people seeking higher education at government institutions. Because of the continued competition for admittance to government institutions, more and more people are turning to private institutions. And these private institutions are expensive.
Planning for your children’s education can be stressful. In this article, we explore some expert tips and suggestions for the best way to finance your child’s education in India.
As cliché as it may seem, getting an early start can be the single most effective strategy when funding your child’s education. Not only will you be able to have a more substantial lump sum, but you will also be taking advantage of compound interest. Education inflation is high; therefore, if you begin early, you can use compound interest to assist you in your savings.
Starting early can go a long way, but if you don’t invest correctly, your efforts could be almost futile. With the cost of higher education rising at an average of 10% each year, merely investing is not enough- you need to choose the right investment option in order to achieve optimum results.
Traditional investment options (such as conventional life insurance policies) offer yields as little as 5%, but this return is assured, and the best part is that they are tax-free. Now, if you begin saving before your child is even born, or if you have at least 18 years before, then this type of investment may work out. However, chances are you will need a more profitable investment option. However, the problem is that these usually come with higher risk. Let’s look at equity funds; these offer higher yields over shorter periods (approximately 16.5% per annum); however, they also have a higher risk. According to experts, equity funds could work for you if you have between 15 and 18 years to save before you need to pay for higher education.
What if you don’t have time?
If you have a short time (let’s say approximately five years) to save before your child’s education needs to be paid for, then you should veer on the side of caution when it comes to investments. It would be best if you used fixed income instruments. Yes, these do have lower return rates, but they offer returns that are guaranteed and capital safety- two factors of extreme importance for the short term.