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Insure your child’s education

Be it an MBA degree from a foreign university or admission in a local medical college, the cost of education has risen drastically over the years. If you are planning to give your child quality education it's time you plan for it and start early since the power of compounding then works in your favour.



Before deciding the investment portfolio make a market search and enquire from friends and colleagues who would have invested for their children.



Children's education is one of the most certain needs, which can neither be postponed nor compromised. The escalating cost of education and protection of the portfolio needs to be considered while planning your investment.



What to include



If you are a conservative investor, go for a traditional insurance product and a mutual fund SIP (systematic investment plan). Look at MFs where there is an insurance on SIPs. These kind of products are available in the market now and helps the investment continue even in case of an unfortunate event like the death of a parent.



You can also opt for a unit linked insurance plan specifically designed for this purpose with sufficient life cover. The balance can be invested in child benefit plans from mutual funds. The portfolio should consider medium and long-term inflation trends in the country. Equity is one asset class which has consistently given good returns over a longer period. Exposure to equity is important to create wealth and beat inflation.



The plans offered by insurance companies help build a fund for your child's education and offer an insurance cover alongside. Ideally, the parent should be the life assured. If an unfortunate event were to occur to the main policyholder, the premiums from that point on will be paid by the insurance company. Additionally, an insurance payout will also be paid to the family.



Education loan



If you are opting for an education loan in your child's name and you are the guarantor, don't preclose the loan if the interest rates are attractive. As per the current income tax law, interest on self-education loan can be deducted from the taxable income calculation. Run the loan for the entire tenure and let the child enjoy the tax benefits during the initial years of her/his career.



The interest rates on education loans vary from 11% to 15%. Shop around for the best rates, pick a loan that you can prepay without penalties, and enquire what expenses the loan will cover besides tuition fee.



Ideal asset allocation for child's portfolio


  • Unit linked insurance (25%): Choose a children's plan that gives you flexibility for liquidation




  • Mutual Fund (35%): Choose a combination of equity and balanced schemes and do a systematic investment with a long-term horizon




  • Fixed income products (15%): Choose from PPF, fixed deposits (FD) and fixed maturity plans (FMP) to stabilize the portfolio




  • Gold (15%): Buy gold coins. This will help you to sell when the prices are high Maintain cash reserve: 5%- 10% for any urgent requirements

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