How to save for your child's higher education

In the absence of a dedicated college-saving fund in India, the conundrum faced by parents on the choice of instrument is how to balance risk and return in the instrument. Here's why investing in mutual funds through SIPs would be a good option.

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Invest in goal-based solutions and stick to your investment plans.
Udayan wants to create a fund for his daughter’s higher education. Although he has been saving some money in an ad-hoc manner for some time, he is not sure if the amount is enough to build a suitable corpus. More importantly, he is unable to invest on a regular basis. Udayan is also not sure which investment option to choose from among mutual funds, child plans from insurance companies and the Sukanya Samriddhi Yojana. He wonders if there is an investment scheme specifically designed to help save for a child’s higher education, similar to the NPS.

India does not have an instrument demarcated for higher education expenses of children, like a college savings fund. What is required is an investment option that is structured to accumulate savings and allows taxfree withdrawals for higher education. Such an automated investment instrument would allow disciplined investing by the parents or relatives. A mandatory lock-in would prevent unnecessary withdrawals and ensure continued investments.

In the absence of a dedicated college-saving fund in India, the conundrum faced by parents like Udayan on the choice of instrument is how to balance risk and return in the instrument. His wife, who has done some research about child plans, found out that they have underperformed, and have not even earned enough to cover the inflation.


SSY is low risk but comes with its own set of problems. Only 50% of the accumulated amount can be withdrawn when the girl reaches 18 years of age. Hence, investing in mutual funds through SIPs would be a good option for Udayan. It will also allow him to track his investments regularly. However, it is important that he sticks to the investment plan and not let it drift away. Goal-based investment solutions like mutual funds may be designated as the college savings funds that can provide ease in decision-making and investing for many concerned parents like Udayan.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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