Saving for higher education often goes beyond just saving. Optimally, it requires strategy and tactics, which makes it imperative that you start early. In an era where the expenditure on education is skyrocketing at an alarming rate, ensuring monetary readiness has never been more important. If your child wants to pursue a career in the IITs, IIMs, studying abroad or even in the “creative” industries, having a carefully designed plan makes the journey less of a hassle.
By the end of this guide, you’ll be able to put aside funds for your child’s future without the need to stress about time constraints or excessive student debt.
When Should You Start Saving for College?
The short and simple answer is right now.
The sooner you intend to save, the better the prospects of your finances benefiting from compound interest. Setting up a savings account should be done as quickly as the child is born. In fact, some parents even consider opening a savings account for their unborn child.
Think about this for a moment: If you begin to save from the moment your child is born, contributing ₹5,000 every month, you will accumulate ₹25 lakhs by the time they turn 18, provided there is an annual return of 10%. This amount is likely to pay for a considerable portion of a degree from an elite Indian university and can be immensely helpful for further studies abroad.
How Much Should You Save Monthly?
Usually, there is no fixed amount to save that is ideal for everyone. The reasons and considerations that will determine your savings goal are:
- Private vs Public: Fees of private colleges often surpass those of universities and colleges operated by the government.
- Study Location: International education can cost anywhere between ₹20 lakhs and ₹1 crore based on factors such as course and country of choice.
- Course Selection: A general B.A. or B.Com degree will be less expensive than pursuing an engineering or medical degree.
- Living Arrangements: Accommodation, transport, and food add significantly to expenses, especially for studying abroad or living in major cities.
As a benchmark, considering one-third of the estimated education costs through savings is a good strategy. Other avenues include scholarships, part-time employment, or education loans.
Tools & Investment Options for College Savings in India
You cannot depend on a simple savings account as the only tool for saving towards your child’s education in India. There are multiple avenues for saving money which can surpass the rate of inflation in India. In India, there are numerous financial tools especially designed for parents to help them save time for their child’s education.
PPF or Public Provident Fund can be used as an option to save funds. This is quite popular for long-term investment goals and offers a reasonable rate of savings. This fund comes under a guaranteed scheme and yields good returns, alongside being tax-free. The good part of a PPF is that its duration takes a minimum of 15 years to unlock for reaching savings goals, such as education for college, within a reasonable time frame. Other than being rigid in the payout period, PPF also operates on the stability rule, which guarantees that it doesn’t stand to lose much with investment. Parents are also able to open accounts on behalf of their children and, after a set time, can make partial withdrawals, which indeed helps in developing a habit around savings.
For parents willing to expose their children to the markets and who have a longer outlook, one of the best ways is through SIPs (Systematic Investment Plans) in mutual funds, especially in equity mutual funds. SIPs offer compounding and the benefits of averaging over time with regular investments of smaller amounts. Equity mutual funds have outperformed other forms of investments for 10 to 15 years, giving an average of 10–15% annually. This goes a long way in building the corpus required for an expensive college education, especially if the child has plans to study abroad.
If you are someone who is saving for a short-term educational expense and is averse to risk, then FDs (Fixed Deposits) come into the picture. These tend to be safe and provide consistency in returns but are neither exciting nor useful for long-term goals. The reason is that they offer limited growth, are fully taxable, and offer a fixed return between 6% and 7%. With that said, FDs are a great way to park funds that have already been accumulated or to cover the expenses planned in the next couple of years.
Diversification across these options helps not only reduce risk but also increases the chances of securing a formidable and sustainable education fund. Each tool has a unique strength, and the most effective strategy is often a blend customized to your income, timeline, and risk tolerance. For example, you could place a portion of your savings into PPF to ensure safety while the other portion is directed into SIPs, which offer higher growth potential.
Make It a Family Affair
Put into action the grandparents’ or relatives’ savings plan, particularly on birthdays or festivals. Instead of gifting, encourage them to add to your child’s education fund. Perhaps establish a dedicated college savings account or UPI-linked wallet.
Teach Your Child to Save and Be Responsible
Teaching a child the value of financial education is as significant as teaching them to read and write. Talk to them about:
Budgeting their pocket money
The significance of internships and scholarships
ROI (Return on Investment) based on college selection,
Instil in them the eagerness to apply for grants, scholarships, and contests. There are countless scholarships in India, both merit and need-based, which go unclaimed purely due to a lack of applicants.
Avoid Lifestyle Inflation
One of the worst financial traps is not only tuition paying but also the growing expenses associated with lifestyle creep. Consider booked hostel parties, expensive eating out, and fast food chains. All of these can hugely hike up your child’s hostel spending money within a single month.
Make sure that most of your children start learning about saving during the college stage. This is a skill that can be helpful later down the line.
Should You Take an Education Loan?
Education loans should not be demonized because they offer benefits, but make sure that they aren’t your only plan. If you are capable of setting aside some savings early, you can greatly minimize how much in loans they will need, thus avoiding debt when starting their career.
Remember:
- Loans ranging up to ₹7.5 lakhs are considered low and do not guarantee collateral.
- You can receive tax deductions under section 80E for the interest payments.
- Usually, the repayment starts after the 6 months post-completion of the course.
- You will also need to consider paying interest on the loan over time.
Final Thoughts: Start Small, Stay Consistent
You do not need to go all in on making huge lump-sum investments overnight. Put away what is comfortable for you, whether it’s ₹1,000, ₹2,000 or more. What truly matters is having a consistent plan in place. Game plan: set aside the funds into a separate account, track how your child’s skills improve over time, and then analyze how your investment strategy is progressing every year.
Don’t forget: out of all the available opportunities, the education of your child is one of the best investments to make. Similar to making smart decisions, prioritizing funds available requires effort and time.
For any query/ personal assistance feel free to reach out at support@Altiusinvestech.com or call us at +91-8240614850.
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