Start investing early in equity MFs or stocks to save for your child’s higher education as costs are rising at 15% per year. Recently, a doctor in Navi Mumbai had an interesting fact to share. Just a few months ago, he put his daughter in nursery class in one of the better schools in Navi Mumbai and paid about Rs 62,000 for a year’s tuition and other expenses like books, uniform, school bus, etc. Then he calculated that his parents had spent about Rs 60,000 in total for his MBBS and post-graduation medical degrees together. That’s an example of how much the price of education has gone up in India.
There are enough cases which you may hear almost every other day. Some of these examples may be on the higher side, cases of aberration rather than a general trend, but the fact is data show over the last 15-20 years, the cost of education in India has gone up by at an alarming rate of about 14-15% per annum, compared to the general rate of inflation of about 7%. Seen in another way, if a course 15 years ago cost Rs 1 lakh, the same course would cost about eight times that amount – that is around Rs 8 lakh.
Going by the demand for education from a growing population in the country, the rate is expected to remain at the same level, if not more, financial advisors estimate. So a course that costs Rs 7 lakh today, most probably will cost about Rs 56 lakh when your child is ready for that course in about 15 years from now. Among various streams of higher education, the cost of studying medicine has probably risen faster than the costs for engineering and management, they said. This is for the simple reason that cost of setting up a medical college is much higher than setting up a college for engineering or management. So for studying medicines, your child may need more than eight times the cost today. Such a sharp rise in the costs of education also calls for a serious need for planning ahead for your child’s education.
And most financial planners and advisors agree that to match the double-digit rise in the cost of education, one needs to invest in equities, equity oriented mutual funds or any other asset class that can give you a rate of return higher than the rate at which the cost of education is going up. “The only way to meet this challenge head on is to invest in growth oriented equity mutual fund schemes,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories. “If you are looking at the debt route, you need to commit huge amount for the same,” he said.
In India, a family usually has two ways to meet the money required for a child’s education: Funding by parents and an education loan. However, someone studying abroad have two additional avenues to meet the funding needs: A scholarship and a part-time job. In India, the option to get a scholarship is very limited and students hardly get to do any part-time job. “I always advise my clients to take a student loan so that the child also, early on in life, has some sense of responsibility relating to paying back the loan,” Sadagopan said.
Seen from the perspective of parents, if you have two children, then the future costs would probably be more than double (unless it’s a twin) because the age gap between the two would leave the cost of the same course higher for the second child.
Financial advisors and planners also say that as parents, you should start planning for your child’s education very early. “If your child is already 9-10 years old, you are already late in planning for his or her education,” said Raghvendra Nath, MD, Ladderup Wealth Management. “You should have at least 10-15 years ahead of you to invest through the equity route. That way even of you can catch one good rally, you are home,” Nath said.
By this calculation, you should have accumulated enough for your child’s education by the time you are about 45, and after that you can concentrate and invest more for your own retirement.
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