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Are Parents saving enough for their Children's Education?
August 25, 2014 tries to answer this difficult question and discovers some shocking facts!

Author : iFAST Content Team


Mumbai-based Akshay is trying his best to cut down on his discretionary expenses. He has reduced his entertainment expenses and uses public transport instead of his own car to go to his workplace. Moreover, he has also started saving Rs. 10,000 every month from his take home salary of Rs. 60,000, a thing which he hasn’t ever done before.

All these curtailments are not for a financial emergency. They are only because his 3 year old son has just started to go to school and the annual fee is Rs. 1.2 lakh a year.

Sounds astonishing, doesn’t it? Not really, if you are the parent of a school-going child. Rising educational expenses are one of the biggest concerns of parents today.

An ASSOCHAM survey was conducted in early 2013 involving 2000 parents, whose annual salary bracket was between Rs. 3 Lakh to Rs. 8 Lakh. They were trying to get an admission for their children in nursery schools in the Delhi-NCR region. Some of the key findings as per the survey’s press release are mentioned below:

  • The average fees of private day schools range between Rs. 60,000 to Rs. 3 lakhs. In addition to this, on an average, transport costs vary between Rs.12,000 to Rs.25,000 per child per year.
  • Over 92% parents in one-member-earning families often find it impossible to pay even for one child’s education
  • The average expenditure on single child education is nearly 75% of the total income earned by a family
  • Donation fees quoted by schools for nursery is between Rs. 3 lakh to Rs. 8 lakh
  • 92% parents believe that they cannot afford to provide education to their children if both of them are not working

Looking at this situation, it is imperative for parents to keep a huge corpus only to meet their child’s entire school education expenses.

But then, this is just school. We also have to account for his/her higher education as well.

Well, Higher education is a completely different ballgame that will further drain resources. Let’s look at another example:

Aashish’s son Atharva has just passed his 10th grade and he wants him to follow his footsteps and become an engineer. But Atharva differs with him and wants to become a neurosurgeon. Any career path that Atharva chooses, Aashish should be ready to spend a huge amount of money to meet his higher education requirements.

Expected expenses for Medical:

Description Fees
Coaching Classes Rs. 1.5 lakh to Rs. 3 lakh
Medical College in India Rs. 34,25,000
Medical College abroad Rs. 97,61,006 – Rs. 1,89,73,908

Expected expenses for Engineering:

Description Fees
Coaching Class Rs. 1.5 lakh to Rs. 3 lakh
Engineering College Rs. 1,21,406 to Rs. 2,50,000 per year (for 4 years)
MBA Tech course Rs. 3,15,000 per year (for 5 years)

Options to save for children’s Education

The rate at which cost of education is rising is bound to worry all of us. We cannot be completely immune to these expenses and will have to dig into our contingency finances in case schools/colleges decide to hike fees suddenly. But, we can surely cushion ourselves against these expenses so that it doesn’t adversely impact our wallets.

There are a lot of options available, which will help parents in saving money for their child’s future. Usually, the choice of a lot of people will be instruments like Bank Fixed Deposits or Public Provident Fund. While these are safe investment options, they do not give inflation-beating returns and hence cannot match future liquidity requirements. Another interesting option that investors consider is equities which are known to give good returns over a long period of time. However, here the problem is that investing into direct equities will be potentially risky, if the investor does not have the required expertise to analyse the different stocks in his portfolio.

In this scenario, one of the best options to invest money for a child’s future is Mutual Funds. It offers the power of diversification and saves the hassle of researching each and every stock available on the Stock Exchange. If an investor invests in one of the best recommended funds, he/she doesn’t even need to time the markets and can start investing right away.

Let’s see with an example:
A Fixed Investment of Rs. 5,000 per month leads to an investment of Rs. 60,000 per year. If we consider a conservative annual rate of return of 10%, following will be the portfolio value at specific time junctures:

Amount Invested (per month) Annual Rate of Return (%) Number of years Invested Total Amount Invested Expected Amount on Maturity
5000 10 5 Rs. 3,00,000 Rs. 3,90,411.91
5000 10 10 Rs. 6,00,000 Rs. 10,32,760.10
5000 10 15 Rs. 9,00,000 Rs. 20,89,621.33
5000 10 20 Rs. 12,00,000 Rs. 38,28,484.55
5000 10 25 Rs. 15,00,000 Rs. 66,89,451.74

To conclude, our suggestion is that an investor should start a Systematic Investment Plan (SIP) as soon as a child is born, so that a sufficient corpus can be built for his/her education.

To save for your children’s education, it’s crucial to invest in funds that look promising in the long time period. To help you create a tailor-made portfolio for your child, please get in touch with your Client Investment Specialist. If you’re not an existing customer, you can call 022 4219 9494 and know more about the portfolio.

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.

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