The average Indian household’s major expense has been skyrocketing even though we do not see the same trend in inflation. Higher education costs have been rising ever since and it is one of the major cash outflows of Indian families.
Be it a four year engineering or a five year medicine or a three year art degree the rise in costs haven’t spared any of these sectors. Gone are the days when they used to say we cannot afford engineering or medicine better to take up arts and science.
The low competition and the lower rates at Government institutions made it easy for the previous generations. But today the tough competition to get admitted into quality governments institutions is making people sought costly private institutions forcibly.
Though in the near future we might have some of the global majors come down to our country the education costs are still going to be on a higher scale. Change in lifestyle and the inflation also has an impacts on the higher education costs.
Our way of Living definitely influences the decision we make on where we send our kids to get educated. Quite often the trend that is seen is children being brought up under affluence predominantly reject being admitted to Government institutions due to the minimal infrastructure facilities.
The burning question in every Indian parents mind is that will they be able to afford the higher education for their wards. Will they have any problems on the funding for the choice of higher education chosen by their children.
The answer would confidently be a ‘yes‘ if they are an early bird in investing and have a clear cut understanding of taking the right steps on where to invest.
Here are the most commonly faced challenges by parents and ways to overcome them when it comes to funding for higher education.
Early bird
Beginning to saving early is an obvious solution . This will not only help in yielding a large sum but the money will also gain from the compounding power. A sip investment for 18 years in equity with an amount of 9000 giving a 15% return is not going to make one crore a daunting amount.
Compounding needs to work on longer period because the inflation rate of education seems to be very high . So saving as early from when the child is three months is one of the doable solutions yielding great results.
When you start late you are not only going to see lesser returns but also can ruin your plans on other financial goals. Starting at 40, isn’t going to become a successful plan because it can definitely land you in a short fall of the amount that is needed.
The Indian household immediately plunges the retirement savings to manage the expense which is a risky move because this will make you dependent on them once you get old. Employment nature is changing because young workers who are energetic replace the one’s at 40 because of their latest skills and this apparently makes it necessary to start investing early.
Short term helps play safe
If the time you have is less than five years then relying on the lower return fixed income instruments is the option. But on a positive note they offer guaranteed returns and safety. These factors make it important in short term.
Though these options seem fairly safe it isn’t fine to do it on a random basis. When you invest in these debt instruments you will need to check that liquidity shouldn’t be a problem .
In this case the much lauded PPF may seem to be a great option but if the money is needed in 3-5 years this idea wouldn’t work.
The tax savings bond on the other side looks to be attractive but poses a reinvestment risk. Always safe to opt for the cumulative option because the interest payout every year, will need to be reinvested in lower interest rates
Choosing the right option that suits your need
Not only does starting early important, but investing on the right place yields good difference.
Equity mutual funds have delivered annualized returns of 16.5 percent in ten years. But this is not everyone’s cup of tea.
Indians have a high urge to save and invest but they still look to the side of safety. If 15-18 years is the time you have for the child’s higher education then equity funds would be the right place to start investing.
The return volatility is flattened out since this is a longer time period. So if you have the will to risk you can go to allocate even 75-80 percentage of the portfolio here. Diversified equity or stocks can be great for investing to tackle the inflation rate of higher education.
The remaining can be put into ppf, fixed deposit or tax free bonds which are safe.
Portfolio review
A yearly review of the portfolio is a must , once the portfolio is in place. Keep a check on the amount required for goal. In this case the two main factors would be tution fee and cost of living. If any one of these rise up you will need to rethink the inflation rate.
Keep checking whether the portfolio is on the track to meet the goal. If there is a downfall you may need to increase. This is also applicable of there is a salary increase.
Keep a check on the fund performance. If a fund lags don’t jump to sell off rather stop sip and invest in in a better performing fund. Analyse the fund and understand the reason for its down performance. Make a decision after analysing 3-4 quarters.
Make sure to rebalance the portfolio at the end of each year. Sell an outperforming fund and reinvest in underperforming funds.
Goal approach
The long term investment process is not static. Start shifting out money to safety of debt if you are in 10-15 year equity investment.
A systematic transfer to short term debit fund would be apt. When the savings is for a crucial goal be sure to act conservatively. The child’s admission to college should be in mind and a down performance in the stock cannot do a spoilsport in your child’s future.
That Madras Mom 