Browse Tag: education

How to save and invest for your Kid’s higher education ?

How to save and invest for your Kid’s higher education?

It’s not a rocket science to calculate how the cost of education has increased in last one decade. Where some of us paid close to nothing for our schooling, we are paying through our nose for our kid’s schooling. I myself studied in a central government school and paid INR5 per month as fees for my entire 12 years of school education. And these days just to buy application form for school admission one has to shell out INR500-INR1500.

 

higher education

 

Now imagine the cost of higher education. The PGP class of the most prestigious B school in India – IIM – Ahmedabad will pay INR19.5 Lacs in 2018 for the two years course. And behold, this amount is 400% higher than what IIM-Ahmedabad charged for the same course in 2007.

 

Almost same is the story with all the undergraduate courses for engineering, sciences and all other subjects. If you extrapolate the fee for the next 10 years, the figures become scary. If you have not planned well for your kid’s education fund, you could get a rude shock. Remember, here we have only talked about the cost of education. I have not even touched the cost of lodging and boarding during the education period.

 

This sharp spike in the tuition fees in last decade or so is a wake up call for parents saving for the higher education of their kids. Through this post I am trying to cover the means by which parents can plan the savings and investments for their kid’’s higher education.

 

The strategy for investment will be different for

  • A new born
  • 5 yrs of age
  • 10 years old kid
  • 15 years old kid

 

Based on which group kid falls, you can choose the strategy for your kid’s higher education.

I am covering very simple means to build corpus fund for higher education. I am not using any complicated investment streams for this.

 

When planning for a newborn

The main benefit of planning at this stage is one get a target investment period as 15-17 years. This target period for investment is sufficient to ride on the equity wave to get high returns and plan for a good corpus without pinching pockets. One can try the below mix

  • Start Mutual fund SIP in 5 equity diversified equity funds (distribute MF investment amounts across 5 different funds). With this you can earn up to 12%-15% gains per annum
  • Don’t fall for ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • For a 17 year target, once you reach 15 years, start taking out money from equity mutual funds and start parking in short term debt funds through STP
  • Open a PPF account in your kid’s name and max out the account every year. This gives tax free returns on maturity.
  • Whatever cash gifts your child gets on birthday year after year, use it to fund PPF account. Also there is no harm in asking relatives to give cash on birthdays as opposed to gifts and feed the PPF account.
  • Make sure that you start moving equity investments through equity mutual funds to short term debt funds when target year is about 2 years away. This will safeguard your gains in case stock markets show fluctuations

 

When the kid is 5 years old

In this case, one has an investment horizon of 10-12 years. This is also a good time horizon for using equity as investment tool. The benefit of using equity is generating higher returns. If always gives good returns over a longer duration but returns could be volatile in short term. Below mix can be tried

  • Start mutual fund SIP in 3 diversified equity mutual funds. With this you can earn up to 12%-15% gains per annum
  • Start mutual fund SIP in 2 balanced mutual funds. They have up to 40% exposure in debt instruments so the chances of losing money is little less during turbulent markets
  • Open PPF account and max it out every year. This gives tax free returns on maturity.
  • Whatever cash gifts your child gets on birthday year after year, use it to fund PPF account. Also there is no harm in asking relatives to give cash on birthdays as opposed to gifts and feed the PPF account.
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • Make sure that you start moving equity investments through equity mutual funds to short term debt funds when target year is about 2 years away. This will safeguard your gains in case stock markets show fluctuations

 

When the kid is 10 years old

In this case, the target investment horizon is 7 years. Equity mutual funds to be used judiciously to generate good returns for close to 5 years and then entire equity investment has to be moved to debt in order to keep the gains safe.

Below mix can be tried

  • Start mutual fund SIP in 2 equity funds
  • Start mutual fund SIP in 2 balanced funds
  • Open RD account (if you are under 30% tax bracket – better to move to debt funds right away )
  • Open PPF account and max it out every year
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies

 

graduation - higher education

When the kid is 15 years old

In this case, you have only 2 years as investment horizon. You can not rely on equity so all equity mutual funds are ruled out. Your entire folio has to be debt oriented. You can try below mix

  • Invest heavily in short term debt / liquid mutual funds through SIP
  • Open RD accounts (if you are under 30% tax bracket – better to move to debt funds right away )
  • Don’t fall for any ULIP
  • Don’t fall for any child education or insurance plan from insurance companies
  • Liquidate all your investments in physical gold which are in the form of coins/bars and move the money into short term mutual funds.
  • For those who have invested in PPF when the child was just born, they can move the maturity amount in short term debt fund. For them it’s time to consolidate the investments and try to save the gains through moving all investments for kid’s higher education into debt instruments.

 

As a parent one has to take charge and start investing for kid’s higher education. Cost of education is rising and educational loans are an expensive bet. Though it’s good to encourage your kid to part fund his/her higher education through educational loan but since the cost of education is very high, a parent can also chip in some amount with the help of steps discussed above.

 

One final word:

If you start planning and investing when the child is just born or up to 2-3 years old, you have a good time horizon to ride the equity markets. A small amount per month for about 15 years can give you excellent returns without straining your finances. For example if you are targeting INR25 lacs over 15 years, you need to save only INR5000 per month in equity funds. If you delay investing for 6 years, your monthly investment figure becomes INR9200. If you wait for another 3 years, the monthly investment amount jumps to INR23800 and with this you may not be able to take benefit of equity market. So be active and start planning now.

 

Happy Investing !!!

Importance of Education in LIFE

Importance of Education in LIFE

Today’s post is about an important topic – “Education”. We at WS strongly believe that education can bring about drastic change in one’s life. Education is one of the most important aspect of life. The post is by my dear friend SG.

“Real education enhances the dignity of a human being and increases his or her self-respect. If only the real sense of education could be realized by each individual and carried forward in every field of human activity, the world will be so much a better place to live in ” A. P. J. Abdul Kalam

importance-of-education

 

Such a trivial topic, right?

Does someone really need to write something on this topic? Maybe not. But again, throughout our LIFE we keep missing all that is trivial and natural and keep running after complicated and artificial.

When you are hungry you should eat.
When you are thirsty you should drink.
When you are tired you should rest.

Aren’t these trivial things. But in our day-to-day LIFE do we do this?
Are you eating when you are hungry?
Are you eating only when you are hungry?
Are you sleeping when you are tired at night or you gulp a cup of hot coffee?

Our lifestyle today is full of contradictions. We believe that trivial things will lead to a trivial LIFE, and I don’t wanna live my LIFE trivially. I want to live my LIFE on my own terms, a full-fledged fulfilling LIFE and what we end up doing is breaking many rules of nature. Trying to take control of our LIFE and when we reach to middle age we are already out of LIFE, ridden with life threatening diseases, LIFE energy all squeezed out and hence living on medication trying to extend our stay here. We had paid the cost of going away from trivia and becoming a robot in laboratory.

You may be thinking already, what is this got to do with the topic, but there is a connection. To learn\know is a natural instinct. As soon as we are born, our learning process starts and it ends when one dies. Learning is a continuous process also it is an individualistic process. It does not necessarily need a teacher. When we reach to school age we face our teachers, very important people in life and from there our education starts. I know we say mother is first teacher however there is a important difference. In English we do not have exact word for Guru and mother is first Guru of every child. She is our eyes and ears until we come to senses in this world. Parents are whom we look up to for every doubt and problem until we face school.

Although education is a general term, it is mainly used for academic education. In last 50 years the speed of science and technology inventions has increased geometrically. It has triggered many things to be automated, i.e. handled by machines and devices. This has caused reduced human dialogue and increased need of technical literacy. We are no more in the era where a person who can do signature or write his\her name can be called educated. Education today has got many aspects to it and is not limited to earning a living. One needs to be aware of things like banking, operating ATMs, operating smart phones, communicate with customer care guys. Apart from this one also needs to be aware of the dangers like fishing, vishing, smishing etc. Even the educated urban people are falling for these malicious things one way or other. That means level of education and awareness is far behind what is required.

Hence the necessity and importance of all-round education has increased significantly in last 20 years I would say. If you can not write 10 sentences i.e. fine however you should be able to use know and provide your Aadhar No, PAN No, bank account number accurately wherever required. So not being educated is not an option any more. That’s why we have started considering education as a basic need for survival in today’s world.

importance-of-education1

With internet revolution, world has become smaller and also smarter. With ocean of knowledge available at a mouse click, internet has power to educate anyone on any topic, only prerequisite is motivation. With companies like Google contributing hugely in linguistic R & D, websites have now been made available in local languages. You can now do banking in local languages. This has opened the doors and opportunities for people who do not know English. Still education remains the basis and key to your success.

Success is a contextual thing and hence definitions would vary however, to put it simply, if you have goals in LIFE, to achieve most of them you will need some sort of education. Level of education may vary. To put it in one sentence:

Even if you hate education you won’t be able to live without it.

An interesting relationship isn’t it?