A child’s education is a key financial goal for most Indian parents. Ensuring higher education in a good institution is a priority and in most cases, it is a costly activity. This needs financial planning and the accumulation of a corpus over long years.
Here are a few mistakes you should avoid during this journey.
Good education is becoming more and more expensive. For example, the total programme fees payable at a top notch management institute, such as the leading IIM, could cost anywhere above Rs 20 lakhs in two years. And this does not include personal expenses. If your child wants to study at a good university abroad the cost could easily be many times more than this.
This does not remain constant. Education inflation is higher than general inflation in the economy. So estimate your child’s education after due diligence. You may not have an idea which course your child will take up 10 or 15 years from now. But it is better to be prepared by targeting a number and factor in the rising costs.
You should start setting aside saving for the education bucket as early as you can. It is a task that gets more difficult with every passing year if you procrastinate. Do not wait for your child to announce the course he/she wants to take up. It is better to start early so that even if she targets a high cost course, you are prepared.
Many a time individuals wake up to these goals when the child enters senior school. By then, there is little time on hand to put together money. In such cases the parent ends up paying through money saved for other goals – typically retirement to pay for the child’s education. This hurts the overall financial plan. The lesser the personal contribution, the higher will be the loan amount to bridge the gap adding to repayment burden at a later stage in life.
Buying a dream money-back plan or child plan cannot be the only way out. If your investment does not do well you will be stuck. Many of these plans have a low score on the liquidity factor. They should not be the only investment. Ideally employ a mix of equity funds, bond funds, bonds, fixed deposits and Sukanya Samriddhi Yojana (for girl child) to create the corpus for your child’s education.
Lenders have strict parameters on extending education loans. It depends on your income, the collateral you are prepared to mortgage, the education institution and the employability of the course that your child will be studying. Finance is not available for all and sundry courses and you might have to provide the education expenses totally by yourself. You should have a reasonable corpus with you to ensure that your child’s dreams are not sacrificed due to the rejection of loan applications by lenders.
If your child is going for courses overseas, then you cannot afford to ignore the foreign exchange risks. The Indian currency can move adversely for you during the years making the shortfall larger. There are many universities and institutions in India that offer foreign tie-ups and a student is offered a semester or two on an overseas campus. This can be a costly affair if forex rates go against you.
Hence may consider allocating some money to overseas investments – maybe dollar denominated – through US focused equity funds, to tide over the foreign exchange risk.
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