Rising Higher Education Expenses – Are You Ready for the Future?

“IIT Undergraduate course fee hiked from Rs. 90,000 to Rs. 2 lakh per year.” This was the news I woke up to a few   days back. While this news would have certainly had a disastrous impact on many aspirants, being prepared for such increases for future education expenses is the need of the hour. While school education is generally financed through monthly income of the parents, higher admission and college fees for graduation and post-graduation courses certainly calls for planned savings. Here are certain tips to help you get on the right track:

1. Be an Early Starter – The first and the most essential tip towards savings for child’s education is to start early. This helps you take advantage of the power of compounding. If you have seen ‘3 Idiots’, one thing that was quite emphasised is that the parents plan their child’s career right at the time of their birth. But they usually don’t plan for funding of their child’s education towards that career. So, if even you have not yet started saving for it, just start now.
2. Choosing the Right Instrument to Save – Report of the Working Group on Savings during 12th five-year plan constituted by Planning Commission displayed some interesting facts on the savings patterns of households wherein more than 35% was kept in bank deposits and even less than 10% was invested in shares and debentures. However, with the evolution of the securities market, the trend is gradually on rise with investors understanding the high returns potential of the equity market over the guaranteed return from fixed deposits. Assuming one needs Rs. 10 lakhs after 18 years for their child’s education, Rs. 1938 investment is required monthly in a recurring deposit earning 9% per annum. However, on the other hand, for a similar goal, an investment of Rs. 1,418 is required in an equity mutual fund with a conservative return estimate of 12%. Get on board tax saving mutual funds through tax saving instruments and effectively invest Rs. 980 (net of Rs. 438 tax savings achieved) to achieve the same goal.
3. Match the Duration – While long term investments are always desirable in equity, but in shorter term, equity can turn quite volatile and accordingly, in case you start late with lesser time left, go for debt instruments instead. Further, as you come closer to the end of the goal tenor, one must start tilting the portfolio from equity to debt to eventually cash. However, even when you hold cash, make sure the cash works harder than the traditional savings account by investing in liquid funds or short term debt funds which come with same liquidity but still better returns.

Carefully planned goals and savings to achieve that will help you witness your child pursuing their  dreams without any financial stress. So, while the sudden hikes in graduation and post-graduation courses’ fees are beyond our control, let’s be prepared by investing smartly.

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment. He blogs regularly at  www.simardeep.com.