The cost of an undergraduate course at IIT has been hiked by 122 per cent from Rs 90,000 to Rs two lakh. Overseas education exhibits a similar inflation as tuition fees for most universities increases annually by 10 to 15 per cent, which can translate from Rs 15 to 50 lakh per year.
Talking about overseas education, an Indian student spends on an average of Rs 20 lakh annually only on tuition fees and accommodation, which could increase depending upon the lifestyle of the student. Add to this the annual fee increase and expenditure can shoot through the roof.
All these figures boil down to the big question: Are you saving enough? Where do you start saving for your child’s education?
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When to start saving
This seems like a mammoth task, but not if you start planning smartly and at the earliest. According to a research carried out by the Indian Market Research Bureau (IMRB), 63 per cent of Indian parents begin investing in the future education of their child even before he or she turns three. This means that parents should start saving as early as the ward’s birth.
Long-term investment plans
The best advice is to invest in Systematic Investment Plans (SIPs), say, Rs 5,000 to 9,000 per month in mutual funds. Assuming a 12 to 15 per cent return, this will give you a saving of Rs 70 lakh to a crore in 18 years.
Tax-free bonds, Public Provident Fund (PPF) or even child plans offered by insurance companies could be an additional saving option. For instance, investing in PPF is a good option since it gives compounded interest where it locks the amount invested for 15 years. Buying endowment plans with great returns can also be an education saving plan as it secures you guaranteed returns when the policy matures, the perks being choosing your own time period for it to mature.
Short-term investment plans
What if the time available to save is just one to five years? The wise thing will be opting for fixed income investments such as debt funds, recurring deposits and even Monthly Income Plans (MIPs). Depending on the money you invest, you can save up to Rs 20 lakh in just five years.
You may also want to consider high risk, high return short-term investments such as shares or equity mutual funds (MFs) and target close to 15 to 20 per cent returns. Also, allocate to the high risk/return asset class such as liquid-plus fund, short-term debt mutual fund or bank fixed deposit (FD). It will be a safe and smart decision investing up to 25 per cent in equities and the balance in fixed income instruments.
Tax benefits and deductions
All these savings can give you tax benefits too. According to Section 80E of the Income Tax Act, 1961, the interest paid on an education loan can be claimed as a deduction. Additionally, Section 80C offers a deduction of up to Rs 1.5 lakhs spent on children’s tuition fees.
Now, what happens when parents haven’t saved for foreign education but the child decides to go abroad for a degree after Class 12? Although the amount needed to fund studies abroad is daunting, there are a number of nationalised and private banks in India offering loans to students for overseas education. On an average, a student is granted a loan of Rs 20 lakh which can go up to Rs 80 lakh depending on the assets of the applicant.
Apart from loans, students with good grades can always apply for various international scholarships available for meritorious students such as the Fulbright Scholarship, Rhodes Scholarship, Chevening Scholarship, Endeavour scholarship or the Commonwealth Scholarship for Developing Commonwealth Countries. There is also the TATA Memorial scholarship and MHRD scholarship specific to the Indian students, not to forget other scholarships that are university specific.
Apart from investing religiously for your child’s education, be constantly updated with the cost of living as well as the education fees and regulate your investment accordingly. With a well-planned savings approach, you will be able to take care of the inflation in education fees.
— authored by Naveen Chopra, Co-founder, The Chopras
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