Children’s Education Planning
Results have been declared for the 10th and 12th examinations. Anil who was studying in DAV public school has passed X standard by securing highest grade. His parents are worried about his future. They want him to be a Doctor. But Anil is interested in Architecture. His younger daughter Anima is studying in 4th standard and wants to become a doctor.
Like Anil’s parents, most parents are worried about the future career of their children and increasing cost of higher education. During the last 5 to 7 years, higher education inflation is in the range of 14-16% per annum. If the cost for some specialized course is Rs 10 lakhs/- today, it will be Rs 21 lakhs/- , 5 years from now. The first step in child’s education planning is to find the child’s interest in the areas they like to pursue. Then follows arranging the required funds. It is always better to start early and save regularly.
Build educational corpus
a. Identify the areas of study and select the institutions that offer the course.
b. Ascertain the course fee and accommodation fee.
c. Find out after how many years the child will start the course
d. Estimate the required corpus, assuming an inflation rate.
e. Invest periodically through SIP mode.
f. If the remaining period is less than 5 years, invest through Bank FDs or Debt MF. If the period is between 5- 10 years, invest through Balanced MF schemes. If the horizon is more than 10/15 years, you may invest through combinations of Diversified equity MF/PPF. In case of shortfall in the corpus, you may avail educational loan.
g. Buy a pure term insurance plan for yourself for the total higher education cost.
h. A year or two before your child enters the course, switch the corpus amount to Bank FDs/ debt instruments.
i. For ascertaining the SIP amount and the mode of investment, you may take the help of fee only Certified Financial Planner or Investment Adviser approved by SEBI.
Consider education Loan?
Availing loan for children’s education which is repayable after one year of completion of the course makes the children learn the value of money since they need to repay from their own earnings. So taking loan for education has an intangible benefit. As per Warren Buffet “Give the children enough so that they become good citizens but do not give them so much that they spoil themselves”.
Tax Benefits
a. The interest on education loan is allowed as deduction under section 80E.
b. The deduction for interest payment is available for eight consecutive years.