Education costs in India have been rising faster than general inflation, particularly for professional courses such as medicine, engineering, and management. Parents who wait until admission time to arrange funds often end up taking large loans or breaking long-term investments. Using a SIP Calculator lets you calculate the monthly investment needed to reach a specific education target by the time your child finishes school. Once the fees start being paid in stages, an SWP Calculator can help you plan regular withdrawals from the accumulated fund. Planning turns a stressful expense into a manageable one.
Estimating the Future Cost
Start by deciding the kind of education you envision: a domestic degree or a specialised course. Get the current cost of the programme, including tuition, hostel, books and living expenses. Then account for the education inflation, which most parents assume to be around eight to ten per cent.
A course that would cost ₹20 lakh today would cost close to ₹43 lakh in ten years, assuming eight per cent inflation. Knowing this number will give you a target and keep your family away from unpleasant surprises.
Choosing the Right Investment Mix
The right mix depends on the number of years you have. If your child is still a toddler, you have at least fifteen years or more to plan, which means you can think of exposing your corpus to equity funds. A diversified equity fund or index fund would help your corpus grow more than education inflation over a period of time. As you get closer to the admission time, start shifting the money to safer options. Three to four years before admission, you can start moving some of the corpus to debt or hybrid funds to ensure that if the market crashes down at the wrong time, your corpus does not face dire consequences. Parents often forget this step, resulting in their hard-earned money getting wasted at the wrong time.
Keeping Goals Separate
One common mistake people make is to club the education goal with other goals such as retirement. Set different funds for different goals. Keeping the funds separate is crucial as it will make it easier for you to withdraw the money for college without disturbing the other assets. Education inflation and retirement corpus might be important, but remember, no one will give you a loan for retirement. Avoid compromising your retirement corpus completely for funding your child’s education.
Using Withdrawals to Pay Fees
Your child will be paying the fees in instalments over a period of time; it’s only logical that the corpus isn’t sitting idle once the child is admitted to college. In case of regular withdrawals to meet the expenses, the corpus continues to earn. You can keep a portion of the corpus in a suitable low-risk fund and withdraw the required amount on a monthly or semester basis. This way, any amount that is not withdrawn keeps earning. Correlate the withdrawal date with your college fee due date to make sure there is no last-minute hassle. Keep aside some money for unforeseen expenses like exam fees, laptops, or even travel. If you have a co-applicant, it’s best to talk about the goal before setting the money aside so that your child has an idea about the expenses and does not feel deprived of their dreams. There are many options to fund your child’s education, like scholarships, loans that offer tax deductions under Section 80E, government schemes for the girl child, etc. These loans and schemes help you reach your goal without burning a hole in your pocket.
Planning for education, much like the expression “numbers make the dream come true”, comes as an exercise that reflects your love for your child through numbers. By setting a target, investing regularly, reducing risks and withdrawing regularly, you can help your child achieve their dreams without risking your own.
