Educating Your Kids Is No Child’s Play

From nursery to college, you need over Rs 21 lakh to just sponsor your child's education in the metros. This requires proper investment planning.

"It's a girl," says the nurse to the couple. The couple has been waiting for this moment for long and is elated! Be it a boy or a girl, all parents want to give the best to their child. The addition of a member to the family brings joy and cheer to everyone, but there are additional responsibilities too. One of them is giving the best education to your child, which requires a lot of money. From playschools to post-graduation, education costs are rising. Our estimates indicate that on an average, it can cost you Rs 21 lakh (at today's prices) to educate a single child from school to college. This includes expenditure on school fees, coaching classes, books, stationery and so on. If you have to include post-graduation studies as well (MBA, for instance), the cost may go up to Rs 98 lakh.

How long is the child dependent on you?

Before drawing up a financial plan, you have to know how long the child will be dependent on you? Hence, you have to start planning for your child from around six months before the baby is born to his/her estimated age of marriage. In some cases, it could be till the child continues to study.
Ideally, parents should have a buffer to take care of over-runs and contingencies. For example, Nitin Vijan's budget for his daughter, Vedika's, education looks like this: Rs 55,000 a year up to Vedika's junior college; Rs 3 lakh for her fouryear engineering course and Rs 20 lakh if she plans to pursue her masters in science or an MBA.

Expenditure graph

Estimates show that the expenses are higher (not necessarily on education) when the child is in the age bracket of 1-5 years. Subsequently, costs tend to lower once the child reaches the age of five years. Again, the expenditure mounts when the child touches 15 years of age. Parents spend in the range of several thousands up to a lakh just on coaching classes and tuition.
Says chartered wealth manager and certified financial planner Kartik Jhaveri, "Parents want to give the best to their child to prepare him/her for the board exams so that s/he can come out with flying colours. They do the same, but on an even larger scale for the 12th standard. In this case, it's more crucial if the parent plans to sponsor the child's professional course."

Graduating from college

Here, the expenses depend upon what course the child plans to pursue. Professional degrees such as engineering or medical are more expensive than regular graduation courses. Here too, there is another variant. If the child is studying in India, expenses may be under control. But if the child plans to pursue his/her education abroad, expenses can go through the roof. Finance options are available to fund overseas education.

Start early

It pays to start planning early to sponsor the education of your child. You can start with a monthly saving of Rs 8,000-10,000 which can go to your child's kitty. You should work towards a corpus of Rs 10 lakh and upwards. A Rs 10-lakh corpus will just take care of your child if s/he plans to do regular graduation. You have to keep aside this money and keep withdrawing from the returns generated from this capital.

Child plans may not be the best investments

Don't get tricked by an insurance broker who says high premiums (of a child plan) will fetch you the best returns for your child. You have to read the fine print to see if it's worth the money. In reality, it may be a high-cost product, yielding peanut returns, Mr Jhaveri adds.

Stick to simple investments

Diversified equity funds can do the needful. One of the advantages of these funds is that they give you the flexibility to withdraw whenever you want. Moreover, they're not time-bound, nor do they have a predefined investment where the money can't be touched till your child turns 18, says another wealth advisor under conditions of anonymity. You can exit from the investment if you feel you've made a wrong investment decision. Also, the returns are largely tax-free.