How to Fund Your Child's Higher Education?

Given that education significantly affects how your child will turn out, you must give them the best education possible as a parent. But as education costs rise, it's more important than ever to budget for and save enough money to facilitate your child's higher education. Calculating your financial objectives and determining how much risk you are willing to take will help you plan your investments. Determine how long you can continue to invest as well. When measuring your financial goals, keep inflation at the top of the list. You will be able to better understand the required monthly investment amount and the realistic lump sum corpus you might need to achieve your goals. In most cases, parents ask how to fund their child's education. Our blog today discusses ways of helping your child fund their higher education.

The Best Ways to Fund Your Child's Education

Determine expected costs

Calculate the expected cost of your child's higher education, considering tuition, living expenses, travel costs, and other costs not mentioned above. Remember to account for inflation costs when estimating the target corpus; failing to do so would lead to the accumulation of an inadequate corpus. Additionally, when determining the estimated corpus, ensure to account for rupee depreciation if you intend to send your child ignfor higher education.

Select the funding source

Even if you intend to take out an education loan, remember that most lenders typically fund up to 85–95% of the course cost, meaning that you would be responsible for paying the margin of at least 5%–15%. You can finance the cost through mutual fund SIPs with a timely start and sound financial planning, or you can choose to partially invest in raising margin money and taking out an education loan for the remaining amount. This would also depend on how many years your child has left before beginning a higher education program.

Early investment

As soon as possible, begin investing for your child's higher education. The longer you wait, the greater the likelihood you will either accumulate insufficient corpus or strain your finances while waiting. If you have more than 5 years to reach your objective, consider investing in equity mutual funds. Over the long term, equity as an asset class has consistently outperformed other asset classes and inflation in terms of returns.

Think about investing in mutual fund direct plans with higher NAVs, lower expense ratios, and higher returns than regular plans. For help choosing the ideal strategy, visit online financial marketplaces. These platforms provide automated advisory services that help any investor—new or experienced—build the ideal portfolio to meet their predetermined financial objectives. They also offer tools and calculators, suggestions for mutual funds, market analysis, and other information to help you make smart investment choices.

Periodically review your investments

Periodic portfolio reviews are essential when investing in your child's higher education corpus or other financial goals. The performance of your funds can be compared to benchmark indices and peers. By periodically reviewing your portfolio, you can analyze the performance of the selected funds and take corrective action if necessary, especially if the funds have been consistently performing poorly for at least two to three years.

You can assess a fund's performance by contrasting it with the benchmark indices and other funds in the same category. To prevent the creation of the target corpus from being hampered by the underperformance of the chosen funds, switch to other funds performing better.

Scholarships

There are numerous scholarships available to help pay for education. Numerous institutions, companies, and even private individuals offer scholarships. Parents should research the various scholarship options available and check to see if their child qualifies for each. When looking for opportunities, parents should remember that many scholarships are need-based. 

It's important to carefully read the requirements for each scholarship because some may only be available to students in particular majors or levels of study. A parent should assist their child in completing any necessary applications and writing any required essays once they have identified a few potential scholarships. Parents can significantly lower the cost of their child's education by utilizing scholarships.

Bursaries

Bursaries are another option for parents who want to cover the cost of their child's education. Bursaries are generally need-based, meaning that a family's financial circumstances give them out. Parents should submit an application and any necessary paperwork to the university their child attends to apply for a bursary. Following completion of the application, a committee will review it and determine whether the family is eligible for the bursary. If accepted, the scholarship will be used to cover the cost of tuition.

Education loans

Parents who want to pay for their child's education can also take out educational loans. Government-sponsored or private education loans are both options. However, compared to private loans, government-sponsored loans typically have lower interest rates and more lenient repayment terms. 

Parents should complete an application and submit any necessary paperwork to the university their child attends to apply for a student loan. After processing the loan, the money will be given to the student. The student will start making loan payments once they have graduated. Parents who use student loans can assist their children in paying for their education without having to foot the entire bill upfront.

Higher education funding options 

 

One of the top ways to obtain the money you require for your child's higher education is through mutual Fund investing, which is one of the best ways to increase your wealth over a specific investment period.

Before selecting the optimal investing strategy, you should consider several things.

• The child's age

• The investor's income

• The kind of investor

• The investment time frame

• The investor's capacity for taking risks

Before you invest to receive the money you need for your child's higher education, look at the top 3 mutual fund plans in India and their important features.

1. Tata Young Citizens' Fund

Fund type

It is an open-ended investment plan for children with a minimum 5-year lock-in period or until they turn 18, whichever comes first.

Objectives of investment

This Fund's principal objective is to achieve long-term capital appreciation through investments in equities, equity-related instruments, debt and money market securities, and debt and money market securities.

Suitable for

Investors seek a balanced saving approach while thinking ahead about their children's needs.

Available plans

Regular Plan

Direct Plan

Indicators of performance

Aggressive Index- Crisil Hybrid 25+75

2. SBI Magnum Children's Benefit Fund

Fund type

With a minimum 5-year lock-in period or until the child graduates from high school, whichever comes first, it is an open-ended investing plan for kids.

Objectives of Investment

This programme aims to produce consistent income through investments in debt and money market products. It also seeks to offer capital appreciation through investments in an active portfolio of equities and equity-related securities.

Suitable for

People want to meet their children's future financial needs by finding long-term capital growth and steady employment.

Available plans

Regular Plan

Direct Plan

Indicators of performance

NIFTY 50 Hybrid Composite Debt Index 15:85

3. HDFC Children's Gift Fund

Fund type

It is an open-ended fund that makes investments in young people with a minimum 5-year lock-in period or until the young person turns 18, whichever comes first.

Objectives of investment

This mutual fund's long-term objective is to generate capital appreciation through investments in debt, money market, equity, and equity-related assets.

Suitable for

Investors seek long-term capital growth and a stable income to provide for their children's needs.

Available plans

Regular Plan

Direct Plan

Indicators of performance

NIFTY 50 Hybrid Composite Debt 65:35 Index

Conclusion

It is necessary to move your corpus to less risky avenues once you are just 2-3 years away from achieving your corpus due to the long-term investment horizon typically involved in accumulating your child's higher education corpus and the volatile nature of equity funds, especially in the short term. Change to debt funds if you want more capital protection and higher levels of liquidity. While most low-duration and short-duration debt funds impose an exit load of up to 0.5%, liquid and ultra-short duration funds typically do not. Of course, nothing can replace your physical presence, but your child can continue his studies even if something uncertain happens to you or your life. The following instructions will help you ensure a bright future for your child.