• Upasana Mondal

Education Planning

Education Planning, Saving for child's education
Cost of education

There are 2 types of schools in India: Government owned or aided schools and Private schools.

Government owned or aided Schools

These are fully funded schools set up by the central or state government. Education is free in these schools or charge a nominal fee that is affordable for most low-income groups. They provide basic education and are decent enough for your child if you are not looking for something fancy or something more than a prescribed curriculum.

Private Schools

Most middle or high-income groups that want their children to be educated beyond a basic level, would opt for a private school. The average costs involved could be approx. Rs. 1.5 lakh and reaching as high as Rs. 10 lakh for Class 10th. They can give your child a wide scope of learning with extra-curricular activities, more focused approach and highly qualified educators.

Higher Education

It has a wide spectrum based on the chosen stream, whether medical college, engineering college, or any other line of education. There are government institutes that charge a nominal fee and there are reputed private institutes that cost as much as buying a property in a metro city. Higher education can cost anywhere from 10-15 lakhs for a master’s degree to around 30-40 lakhs for a good medical or engineering college. It can be approx. 1 crore if you are interested in sending your child abroad to a reputed institute.

Education Loan

There is also an option of education loan. Some parents do not intend to save for higher education to build a sense of responsibility in the child, who must repay the loan amount from his earnings after securing a job. There are parents who do not want to start their child’s career with a debt and do everything they can to meet the cost. Education loan can also be an option for those who want to or are able to partly fund their child’s higher education. The interest rate can be as high as 13% for some banks.

Saving for education

Once you have decided how you want to educate your child, Mainstream Schooling (whether public or private schools), Home-schooling or Unschooling (Please read my blogs on Unschooling if you’re interested), then you would have to estimate a requirement and how you would provide for it. Some schools accept quarterly, semi-annual or annual. Based on the frequency of the requirement, your financial advisor would be able to suggest how and where to save.

While your children are in school this recurring cost can be met from your current monthly income. In case you have a surplus available after meeting your regular expenses every month you may be able to save this amount for future school costs or higher education costs.

Saving Instruments

There are various savings instruments available and you can choose based on the expected returns and the amount of risk you are comfortable with.

Mutual Funds: Investing regularly in equities may give you a sizeable return to meet the cost. Equity investments are volatile in nature however if you stay invested over a long period, it can even out. You can start a monthly SIP which helps you build a saving discipline. You can increase you SIP amount as your income grows. SIPs also give you a flexibility to make lumpsum investments anytime you have a surplus. They are easier to manage online as well. When you get closer to your goal of higher education, this corpus can be moved to a less riskier investment like debt funds. The sooner you start saving, the lesser you would need to save.

If you have a short term remaining for your goal, you would need to play it safe like investing in fixed income instruments to safeguard your corpus. Your financial advisor may help you choose the type of funds you can invest in as per market conditions at the time of investing.

Insurance Plans: Insurance plans that are meant for child education have special features that distinguish them from other insurance plans. These have a life cover and a savings element attached mostly that help you accumulate a corpus over the tenure of the policy. You should be careful while choosing such plans by reviewing all charges, premium to be paid, premium paying term, policy term and most importantly benefits to be received. If you do not understand any of it, your financial planner could help you understand and choose a policy.

Public Provident Fund: Their tenure is of 15 years with rate of interest being 7.6%p.a. currently. You can invest any amount from Rs. 500 to Rs. 1.5 Lakh per year. Main advantage is that interests are tax-free and deposits are eligible for tax exemption under section 80C of Income Tax Act. You can make partial withdrawals from the 7th year onward and full withdrawal after 15 years. Its definitely safer than the other options given above because of fixed returns however you may have to decide if the returns are enough for your expected corpus in the long run.

Sukanya Samriddhi Account: Another fixed saving instrument, it offers 8.1%p.a. and is tax free. This scheme is only for the girl child. This account is operative for 21 years after opening it. Partial withdrawal of 50% is allowed after the child’s 18th birthday. Deposits can be made for 15 years from the date of account opening. It offers the best return compared to other government schemes or deposits. You can tax exemption under 80C for deposits.

Bank Deposits/Company Deposits: You can consider high quality company deposits or bank deposits for safety and decent returns. You can compare them online easily to choose the best one as per your tenure and best returns available. Company deposits can be chosen as per ratings to make sure they are safer.

Hope you are able to get a picture of where to start in the process of education planning. Do consult your financial advisor for a more tailored and systematic approach.

Happy Planning :)

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