How to Plan Investments for your Child’s Education?

By Advisorymandi
3-June-2019 3:43:55 PM

Do you know about ‘Rat Race’? – The author of ‘Rich Dad Poor Dad’ Robert Kiyosaki described ‘Rat Race’ as a frustrating lifestyle where a child has been told from the early age to work hard in school to get a decent college so that you can secure a ‘good job’ to save sums of money for your future. While reading through the words of ‘Robert Kiyosaki’ in Rich Dad Poor Dad, I realized that there is no end to work and saving money. With time, the taxes increase – home loan, income tax, house tax, and ‘God’ knows how many taxes we have to go through. On top of that when your child is born, you realized that the next step is to save for the future of your child’s education. But, giving the current lifestyle and inflation, it is not possible to save enough for your children’s education just by saving bit by bit.

So, what we do, we plan our investments so that our children can get the education what he deserves. Unfortunately, most people fail to plan that kind of investments. Therefore, by this article, I would like to help you in getting a general understanding of, “how to plan investments for your child’s education?”

Although the book ‘Rich Dad Poor Dad’ published in the year 2000 I believe the principles are still pretty much applicable in today’s society. And we can his perception in our life. After doing in-depth research I come up with few things that can help you in planning the investments for your child’s education. However, I would like to remind you that it is not a formula or trick that will help you save a load of money but I’m sure it will help you develop a decent plan that can work out for you.

So, let’s begin!


Best Ways to Invest for Your Child’s Education

Inflation may be in control but we all know that the rate at which cost of higher education is rising, it would be triple-fold in just a few years. So, sooner or later, children’s education will be one of the biggest cash outflows that a family must plan for.

At least, the children from the earliest education had it easy. There wasn’t much competition and also not many costly private colleges forcing children to participate. Now that the lifestyle has increased, it is also important to send your child to a college that matches your lifestyle. But, that comes at a great cost. But, if the parents plan ahead and take the right steps in the journey of investing for a child’s education, you can surely overcome this.


Start Early

When it is about to save and invest for child’s education then you need to know that you will need a large sum of money at the time of your child’s admission. And in order to get that you will need to start investing early to able to amass the large sum. Otherwise, it will take many decades to achieve a large sum. For instance, if you can invest Rs. 8000 approx. in equity mutual funds scheme via SIP with an annual return of 14 percent then you would be able to create Rs. 1 crore in just 18-20 years. However, in order to achieve the same amount in 10 years, you would need at least 36,000-39,000 rupees per month that seems impossible.

Since you will be investing for your child’s education for long-term, you need to consider inflation and understand the magic of compounding over the years.

So, better start early! A delayed start could jeopardize your financial goal or leave you with the very small corpus.


Choose the Right Investment Option

It is important that you start early but it is not enough to reach your financial the goal until you choose the right path. As a parent, you must choose the right investment option that can bring you potential returns for your child’s future. For instance, some people even started saving for their children even before their birth by taking some insurance policies that offer mere yields with no more than 5-6 percent. Yes, the returns will be assured but, with the current rate of inflation, it won’t be anywhere near to what you will be needed in the next 15-20 years.

On the other hand, the equity mutual funds can help to gain high-returns however it is not everybody’s cup of tea. It all depends upon your risk appetite. So, I would recommend you to consider the sum of money, duration, risk tolerance, and financial goal before choosing an investment option. Any wrong step and you could lose your hard-earned money in just a few years.

Remember, if you’re looking to invest in long-term for 15-20 years, then it would be wise to include equities in your investment portfolio along with some debt funds so that you can manage the risk and maintain the rate of return throughout the years. But, if you have a time horizon of fewer than five years, you’ll need to primarily focus on the fixed deposit incomes such as debt funds, recurring deposits, and PPFs among others. These financial assets may not offer high returns as equity mutual funds or other risky assets but these can sure provide fixed and assured the return of capital with mild to low-interest rate.


Review Your Portfolio

Once you successfully placed your portfolio, it is time to monitor it at least once a year. It is important for you to analyze which stocks are performing well, which are not. You also need to re-consider the inflation rate estimation after time-to-time. Track your portfolio with your financial goal to see if it on the right track or not. If you are falling behind, you don’t need to make rash decisions like selling immediately. On the contrary, you can increase your fund value so that you won’t go out of track.

Finally, rebalance the investment portfolio at the end of each year. That means, to make profits out of outperforming stocks and proceed with the underperforming ones. By doing so, you can mitigate the risk of losing potential profits and can succeed in generating enough wealth from your child’s education.

Don’t forget, the child’s admission in a college is fixed so don’t let any downturn jeopardize your investment portfolio and your children’s future.

Hope, this article helped you in a way, you expected it to be. Nevertheless, if you have any query or would like to add something then doesn’t forget to mention in the comment section below.

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Author: Advisorymandi

AdvisoryMandi is India's most trusted Stock Market Advisory marketplace covers NSE, BSE, MCX & NCDEX. Invest with confidence and harness the power of AdvisoryMandi to make smarter investment decisions in Stocks, Indices, Commodities, Forex & IPO.

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