The Buyt Desk
Parents should start saving early as overseas education is a costly affair including visas, tuition fees, hostel fees, currency fluctuations and travel expenses.
Indian parents’ top priority is imparting the best education to their children. Some even prioritize education over a child’s health, nutrition and behaviour. Many want their children to study abroad in top counties and the best universities. They start preparing their children from class 1 to crack entrance exams. And this is a reality in many Indian homes. Also, it involves steep costs which parents should prepare themselves to pay. So Parents should plan well and create a higher education corpus for overseas studies. It is good if the parents start building the education funds when the child is very young so that they have a lot of time in hand and the power of compounding creates magic. Along with the child, the education corpus also grows over the years. Plan the course and calculate the funds you may need and invest regularly to meet the goal.
How to accumulate funds for your child’s foreign education?
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Estimate the costs appropriately
Even before you start investing, the first estimate the amount you may need for each child’s higher education and when you need it. Once you know when and how much, you can do a reverse calculation to know the amount you need to keep apart and invest from now on. If you are a parent of an infant then you have a good 15 to 20 years in hand to plan and invest well without worrying about the course the child may choose. If your child is in primary school then you hardly have 10 years to build the corpus and hence you need to do heavy investments.
You need to check the fees charged by a few top universities for a few courses. And the final corpus target should be the costliest course fees but children may go for courses that may have lesser fees. Keep in mind inflation and currency depreciation. As per the economic research, the inflation rate is 4% and currency depreciation is 3%. Considering these factors, calculate the amount that the child may need for the costliest course in the costliest country by the time he /she is 20 years old. When studying abroad, you should not just consider college fees but also accommodation and cost of living for a minimum of 4 years of studies. Inflation is very high now and it is better to be prepared for higher inflation rates.
2. Invest regularly without fail
Once you know how much education corpus you need to build in what time duration, you can start with financial planning and set financial goals. If you have a good time reaching your financial goals then you have a strong beginning. You can invest a small amount monthly when you have many years in hand and not sacrifice much in day-to-day life. The power of compounding will make your money grow without much effort.
3. Invest in Equity
When you arrive at the funds you need for your child’s higher education, it may send chills in your spine as the number will be too big. Don’t lose heart at the steep numbers. You need to start investing gradually and over a period of time you need to increase your investment capacity only then will you be able to meet your financial goals. Other than your investments, the child may get a tuition fee waiver, scholarship or even opt for an education loan and reduce your burden.
When it comes to investments, Systematic investment plans (SIPS) are best when you invest in well-diversified and managed equity mutual funds. These are good for the long term and they can beat inflation. And to beat the currency risk, by investing in dollar-denominated assets like diversified index funds, and foreign stocks. Though the market is volatile, in the long run, the numbers will be impressive. Do not run behind previously well-performed themes and sectors. Even in such a volatile market, equities are a good bet for the long term. You can also invest in Gold as it is a good hedge against the US dollar’s increasing value.
4. Do not divert from your financial target
Keep track of your portfolios and as you are nearing your target, move your money more towards non-volatile investments. Non-volatile investments are ones with minimum to zero risk and lesser returns. Do not invest in a highly volatile financial vehicle and lose your money. Debt investments like diversified index funds or fixed deposits are a safe bet when you are nearing your financial goal. The Sukanya Samriddhi plan by the government of India is a very good debt investment plan for the higher education of girl children.
5. Keep track of changing times
Keep a good watch on changing education costs, inflation and currency depreciation. It may go beyond your estimation over the period of time. Under such conditions, you need to start investing more every month. The extra investments will help you reach your target even after inflation.
6. Buy good term insurance
Life is uncertain and your death should not hinder your child’s higher education. Buy a term life insurance which will cover all your liabilities and cover your family in case of your untimely death. Buy it early so that your children’s education is taken care of even when you are not around.
