What is Child Education Plannning?

A Child Education Plannning in Mutual Fund is an investment option that helps to create a financial net to secure your child's future financial needs. These plans are structured to provide a disciplined and goal- oriented approach to investing for your child's higher education, career, or other important life milestones.

The cost of higher education in India has been growing in double digits (in percentage terms) over the last 20 years. So, one of the most important aspects of this financial planning is to determine how much money they need to accumulate for their children's goals. You should always factor inflation in determining your goal. Once you know what your goal is, you can figure out how much you need to save to meet your goal. For example, if you want to create a corpus of Rs 70 lakhs for your child's graduate and post graduate education, 10 years from now, you need to save and invest around Rs 35,000 per month (assuming 10% annualized return on investment). The importance of an early start in financial planning can never be understated. If you have just 5 years to accumulate the same amount, you need to save more than Rs 90,000 per month. Moreover, nowadays the cost of 4 year engineering education (B.Tech/B.E) in the top Government institutes is around Rs 9 - 10 lakhs. In some of the top private institutes, cost of engineering education can be as high as Rs 15 - 20 lakhs. The cost of medical education is similar, if not a little higher. In the next 10 years, applying an inflation rate of 10%, the cost of engineering or medical education may be in Rs 25 - 45 lakhs. MBA from one of the top institutes will cost you around Rs 20 lakhs. 10 years from now, you should be prepared to fork out Rs 50 lakhs for your child's MBA.

Parents Need to Plan for their Children's Education and Brighter Future

Over the last 20 - 25 years, with more and more graduates with engineering and / or MBA degrees entering the job market, the competition has been intensifying. Most Indian parents in the middle income or higher income groups have very high aspirations as far as their children's careers are concerned. Parents need to have a savings and investment plan in place over a sufficiently long period of time in order to meet their children's education goals. Also by fullfilling these goals parents are also be able to make their children's future bighter.

Mutual Funds are Ideal for Child Education Planning

Through mutual funds you can get exposure to equity and at the same time, diversify risk associated with investing in individual stocks. You can invest in mutual funds through Systematic Investment Plan(SIP) where you can invest from your regular savings through automatic debit from your bank account on a specified date every month or any other interval. Mutual fund SIPs are the best financial planning instruments for your long term goals. In the accumulation phase of financial planning, the right asset class plays a very important role in ensuring success of your financial goal. Historical data shows that, equity is the best performing asset class over long investment horizons. In the last 10 years, Nifty 50 TRI, the benchmark index of 50 largest stocks by market capitalization, gave nearly 11% annualized returns.

So, in short, Children's higher education should be one of the most important financial goals for any parent. With cost of high quality education increasing at a rapid rate, you have to start early and remain disciplined in your financial plan to achieve your children's goal. Mutual funds are ideal investment options for children's education planning because they will help you invest in the right asset mix to ensure the success of your goal. You should consult with your financial advisor as to how to go about investing in mutual funds for your children's education.