Funding children’s future
Plan to fund for children’s education:
We need money to fund children’s future education (professional or post-graduation courses), So we can consider it as a Long-term. For long-term goal, the best practice is to start saving some money each month while they are still young.
Systematic Investment Plan (SIP) for the future
The best bet for ensuring a sizeable corpus for our children’s long-term education needs is a Systematic Investment Plan (SIP) that puts aside some funds in an equity-based mutual fund.
The equity fund is not recommended if there is no 2-3 years of gap (short term) at our disposal for meeting the cost. That’s because, the equity markets can be very risky in the short-term, and can even eat the capital’s value.
The equity fund is only recommended if we have plenty of time to plan, if you see the past record, who invested in these more than three years ago have managed to make very decent gains despite the stock markets losing over 40 per cent of their value recently.
If you are still not convinced with the equity fund, then you can go for risk-free investments like recurring/fixed deposits or SIP in a debt fund.
Insuring your child:
Children’s insurance policies is another alternate which they ensure cash flows at regular intervals. The milestones for withdrawals from such policies, and even their tenure, can be fixed according to your convenience. An added advantage is that these policies allow for cash flows even in the event of a parent’s death.
Taking a loan is not a bad idea:
Educational loans is a good bet. Banks provide these for students pursuing higher education, and are now offering them even to parents unlike in the past.
The interest rate on such loans is competitively priced at around 12 per cent. As per latest tax rules, the interest paid on such loans is deductible from taxable income without any limit, but not the principal amount.
Even those who don’t have any educational loans can enjoy tax benefits on ‘tuition fees’ of up to Rs 1 lakh through Section 80C.
