Setting the tone for your kids’ successful lives lies in quality education. Whether your kids want to study engineering, medical or business administration, you will need adequate financial means. For instance, the cost of a 4-year engineering course at a private college can range around 15–20 lakh. Whereas medical studies can cost INR 5–10 lakh more at private educational institutions. Planning early is critical to accumulating the required sum for child education.
Planning has a lot to do with fruitful investments that align with the required educational expenses.
Here we have detailed those financial tools you should invest in for your children’s education.
Explore and Assess These Tools for Your Children’s Education
There are several tools you can use to accumulate the required sum for your children’s higher study requirements. These include fixed deposits, mutual funds, or even loans. Let’s explore all these tools and see which helps you meet educational expenses the best way.
Fixed Deposits — The Safest Way to Build Funds for Child Education
Since it’s about your children’s education, you need a fair degree of assurance on the return your money can generate over time. A fixed deposit is a product that allows you that assurance. The name itself defines it. It’s a product where you book a specific sum of money for a particular period at fixed interest rates. Everything is fixed, which is great to hear! And if you speak about 2024, it’s the best time to invest in fixed deposits. Most banks are offering fixed deposit interest rates of around 7–8.50% per annum. At the same time, most fixed deposits allow you premature withdrawals, allowing you the required flexibility in terms of liquidity. So, if you are parking say INR 1,00,000 for 10 years at 7.50% per annum, you will accumulate INR 2,10,235 when the fixed deposit tenure ends.
Mutual Funds for Child Education
Equity mutual funds are one of the best ways to accumulate capital for your child’s education. They invest in a variety of stocks to diversify and raise your capital base despite market volatility, over time. The best mutual funds to invest for child education would be a large and multi-cap fund. A large-cap fund invests predominantly in the stocks of companies having robust finance and superior management control, whereas a multi-cap fund will look to extract the best out of large, mid and small-cap stocks. This way, your capital base grows and diversifies, giving you the cushion required to build education funds.
You can invest in the best mutual funds using a Systematic Investment Plan (SIP). Invest monthly and see your capital grow substantially over time. For example, a monthly SIP of INR 5,000 at an assumed annual return rate of 12% will lead you to INR 11,61,895 after 10 years. An appreciation of INR 5,61,695 over a total investment worth INR 6 lakh over 10 years.
Education Loans are a Good Choice Too!
Education loans can also be availed to procure funds for higher studies. However, these loans are granted to students based on the reputation of the college/university they are looking to admit to. Mostly, students finding admission into the top institutions get these loans. You can access an education loan of upto INR 7.5 lakh without security, beyond which, banks will ask for securities such as fixed deposits, mutual funds, national savings certificates, etc.
The loan is repayable a year after the course completion in equated monthly instalments (EMIs) at an interest rate ranging from 8–15% per annum. Tax benefits also apply to education loans. The interest paid on these loans is tax-free as per Section 80E of the Income Tax Act, 1961. However, you need to opt for the old Indian income tax regime to avail of tax benefits on education loans for upto eight years. The new regime does not offer such benefits. Education loan interest rates
Don’t Mind Taking a Personal Loan at Lower Interest Rates
While education loans can take time to be disbursed into your children’s account, personal loans can come to you in no time provided you have a strong credit history, higher income, job stability, etc. A good credit score can enable you a personal loan at lower interest rates. So, you can pay for your children’s education easily and return the borrowed capital along with the interest to the lender in easy-to-pay EMIs. Personal loans usually come at interest rates ranging from 12–20% per annum on average.
Conclusion
Your children’s education must assume enormous significance in your life. Don’t procrastinate but keep on saving from your income to build a strong capital base to invest in child education. Keep using the fixed deposit calculator and mutual fund SIP calculator, available online, to figure out the investments you need to make to procure the required funds for education. In case you miss out on the required amount by some, take loans at lower interest rates. The key is to be proactive rather than reactive. With this, we at zarooribaathai.in wrap today’s session. We will soon come with more insights.
