Skip to main content

Planning Kid Education

 

These mistakes can not only jeopardise the goal, but also your financial independence.

 

On a recent holiday to the US, my husband and I visited our respective alma maters. We were thrilled to walk down the familiar corridors and meet our erudite professors. We benefited tremendously from the experience of studying abroad, but when we graduated more than a decade ago, the fee structures were reasonable. So our jaws dropped when a friend mentioned that he was paying $1,80,000, or nearly `1 crore, to fund his son's MBA from Columbia University, New York. Nearly half of my friend's assets would be consumed to fund it, leaving him little for his daughter's education and his own retirement.

Funding higher education even in India may not be cheap. A four-year undergraduate programme at IIT is about `4 lakh. A two-year PGDBM programme at IIM costs `34 lakh. Hence, an IIT-IIM six year programme can set you back by almost `40 lakh. If we factor in 10% education inflation, it will set you back by `1.5 crore 10 years later.

Children's education is a non-negotiable goal for most parents and can often be the single largest cash outflow. Hence, building the fund for your child's higher education, whether in India or abroad, definitely needs planning.

COMMON MISTAKES WHILE PLANNING FOR YOUR CHILD'S EDUCATION

1 Starting late: The best way to realise the goal without much strain is to start early, ideally when your child is born. In such a case, the investment amount is lesser and the exponential effects of compounding make your wealth grow faster. Unfortunately, by the time many parents wake up to the high cost of education, it is too late. Unmitigated spending and high EMIs tend to wipe away most of the savings in the early years, leaving little for future goals.

2 Underestimating the cost: This is the most common mistake made while deter mining how much to accumulate. It is important to come up with a realistic number for the education cost, which includes not just college fees but also accommodation and other living expenses. Then calculate what this education will cost when your child is ready to pursue it. If an Indian postgraduate programme costs `17 lakh today, it will amount to `44 lakh after 10 years, assuming that education cost will increase by 10% each year. Hence, the goal should be to build `44 lakh over 10 years, not `17 lakh.

3 Choosing wrong investment options: Child education can be funded through various assets, be it mutual funds, fixed deposits, real estate or specialised children's education plans. The key is to invest and manage these assets efficiently so that they generate adequate returns to meet your goal. Mistakes are made when people have unrealistic expectations about returns and tenure of investment. For example, equity mutual funds should only be used as a means of growing wealth if the investment horizon is five years or more. The long tenure reduces the volatility and risk associated with equity to a large extent, enabling it to deliver returns that beat inflation. Fixed deposits work well for shorter tenures. It is advisable to invest in FDs or similar debt instruments when the goal is less than five years away. This interest is taxable at marginal rates, reducing the overall returns and impeding its ability to beat inflation. If you must build the education fund using FDs, you should invest a larger amount initially so that the post-tax returns are adequate enough to meet the goal.

If you invest in well-diversified, high-quality equity mutual funds, delivering an annualised return of 10%, you will need to invest `17 lakh today to build a fund of `44 lakh 10 years on. If you invest in a recurring or fixed deposit offering a post-tax return of 6%, you will need to invest `25 lakh over the next 10 years. Similarly, you will have to put in `21 lakh in real estate to build the same fund, assuming a post-tax, annualised return of 8%.

4 Failure to cover risk: If you are creating a corpus through monthly investments or systematic investment plans, the risk that you may discontinue the investment due to death or disability is very real. In such a scenario, the corpus will only be partially built. Hence, it is important to have a life cover equivalent to the education corpus envisaged. In case of death, the payout can ensure that the child meets his education expenses. Permanent disability, critical illness and waiver of premium on disability are some of the riders that must be attached to life covers for added protection. If you are building the fund through an illiquid asset such as real estate, you run the risk of not being able to liquidate the asset in time and for the value that you expect. You need to ensure that the property is sold a few years before your child starts his education so that the funds are readily available when needed

5. Disregarding specialised children plans: Such plans from insurance companies work well when the tenures are 10 years or more. With the restructuring of costs, these plans have become an attractive option. On maturity, they can use the fund value for the child's education expenses. In case of death during the policy term, the insurer will pay not only the sum assured to the nominee, but also all future premiums till the end of the term. This ensures that the fund does not stop growing and the corpus is available. An RD or SIP in a mutual fund will not cover these risks.

6. Compromising an independent retirement: Life is all about prioritising. It is not worth planning for an overly expensive education if it compromises your financial independence. If setting aside `1 crore for a foreign education implies that you will be left paying a loan for many years, or will be financially dependent on your child for the rest of your life, don't do it. Look for other, less expensive alternatives. It is extremely important to secure your financial independence first, before your child's education needs.

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

Tax Slabs 2012

Slab 1 Upto Rs 1.6 Lacs Tax Rate NIL for Men; Upto Rs 1.9 Lacs Tax Rate NIL for Women; Upto Rs 2.4 Lacs Tax Rate NIL for Senior Citizen; Slab 2 Rs 1.6 Lacs to Rs 5 Lacs Tax Rate 10% Slab 3 Rs 5 Lacs to Rs 8 Lacs Tax Rate 20% Slab 4 Rs 8 Lacs onwards Tax Rate 30%   --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 R

How Tax Deducted at Source (TDS) works?

    THE tax season is here. And if you are an employee you can't blame your employer for deducting large chunks of money from your salary towards tax deducted at source ( TDS ), which he is legally obliged to do. Your bank will also deduct some percentage from your FD interest of Rs 10,000 or more towards TDS! So what is this TDS all about? How is it computed? Are there any changes this year? Read on... What is TDS? TDS reduces your taxable income and could even provide tax relief! The TDS collections account for 40 percent of the total taxes collected in the country. As the name suggests TDS is the amount of tax that is deducted at source in certain types of income . The TDS thus collected is deposited in the Government treasury within a specified time. How is it computed? Some of the types of income where TDS is applicable include salary, interest, rental fee, interest on securities, insurance commission, dividends from shares and UTI/Mutual Funds, commission and brokerage

Modern day balanced mutual fund approach

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India)   In reality, most balanced funds have a strong tilt towards equity instead of a mix of equity and debt THERE are various types of mutual funds available to investors with specific features. Often investors have a particular idea about a specific type of funds in terms of their features and risks, but that is not what is actually available. Therefore, it is necessary for an investor to understand the actual position before picking up a fund. This requires some work on the part of the investor. One example can be the situation with balanced funds. Name is not representative: One of the first things that an investor has to understand is that the name of the fund is often not representative of its investment pattern. The name often represents only the aim of the fund, and not what it actually is.

ELSS Tax Saver

ELSS Stands for Equity Linked Savings Scheme.   ELSS Fund are mutual funds with 3 years of lock in period and offer income tax benefit under section 80C. They are open ended to purchase. Not all Mutual fund Investments are eligible for tax exception. List of Tax Saving Mutual Funds   Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDF
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now