7 Things to consider while planning child education fund

Almost all parents want their kids to go to the best educational institutes. A child's ideal education has always been the foremost goal among parents. And to achieve this, it is very vital to have a solid education fund as the same involves a lot of high expenses. By the time your kid is ready for school and college, you should have the right amount of money for fees and other expenses, instead of getting tensed by seeing the high costs of education. Ideally, you should rely on savings that you have been doing instead of panicking and looking for loans. 

New parents, right now, must be more stressed as there is a Coronavirus pandemic led recession. Worrying won't help but a smart and solid education plan may help. So, start right away to enjoy the benefits of compounded interest and to be stress-free later. Today we have compiled a list of 7 points-to-remember that will help you achieve your target by the deadline and in the future, you will not be intimidated by the astronomical money requirements.

1. Start early with baby steps is most vital

For any long-term goals, you should start early to get the max benefit. So, start your kid's education fund as soon as he or she is born. So, that you have 15 years to save for the college expense. Before he or she is born you can create the corpus for the schooling. So, make monthly contributions and the effect of compounded growth will help you. Every year with an increase in your income, you should also increase the monthly contribution. 

2. Set a target as per inflation

Set a target and while setting keep in mind one big factor i.e. inflation. In order to understand inflation, we have an example for you. For instance, the fee of 2 year- course in the year 2018 in the Indian Institute of Management-Ahmedabad was Rs 19.5 lakh. This is 400% higher than the fees of the premier B-school in the year 2007. So, if the fees continue to rise at an average of 20% every year, it will cost you around Rs 95 lakh in 2025. So, calculate the target after assessing the future costs of education.

3. Smartly choose savings and investment instruments

Ideally, you should invest through instruments that provide inflation-beating high returns. With long investment tenure, you will have to bear moderate levels of risk and the same will give you long-term returns. Understanding instruments which will give more returns is also important. For example, a 10-year return on equity mutual funds will be higher than small savings schemes such as PPF. 

4. Keep reviewing your fund status

It is very important to review the progress of the corpus and investment plan. Keep a check regularly and if you need to step up your contribution then you can. Keep monitoring the cost of education and adjust investments accordingly.

5. Capital protection

After a point, by the time you are almost near your goal, you should focus on capital protection. You cannot afford to take risks with the money that you have accumulated. As you come closer to your goal, you can go for short-term debt funds and fixed deposits among others.

6. Keep education loan as last resort

If you are falling short on funds or unable to reach the goals, then you can go for an education loan.  However, never break your retirement fund. Your retirement fund should be given priority over your child education fund. Take an education loan with the child as a co-borrower. The repayment of the loan will start after a 6-12 month moratorium when he or she completes education.

7. Life insurance

Monthly savings, as we know is what will lead to the desired corpus, but what to do if something untoward happens to you. So, it is best to have a life insurance policy in place to safeguard your kid's future and his or her's dream. A term plan will not cost too much, for instance, for a cover of Rs 1 crore, you will have to shell out Rs 10,000-12,000 per year.