Congrats to you if you are eager to provide for your child’s education with corpus money from investments. Through investments, you can substantially grow your capital from the day you start to invest. And if you invest when your child is still young, your chances of accumulating a good fortune are high by the time they are ready for higher education. Here, you will find all the necessary information regarding the importance, selection, and methods of building corpus money for child education.
Importance of Having Ample Corpus Money for Children’s Education
Let’s face the truth- Education comes at a price. There are scholarships and waivers, but it is tough to get a quality education even then. Especially in India, the second-largest population in the world, where giving scholarships to everyone is not feasible. Because of this, students have to settle with private or paid education. Even if you haven’t yet realized the potential of your child, it is good to have a backup plan. It will help you in case things don’t go their way in a matter of their education.
The best reason why you must have corpus money from investments is that it will give financial freedom to the child. Insufficient money can lead to several mental and emotional distress if the child doesn’t get to pursue their dreams of education. An adequate savings plan for education will ensure they won’t have to compromise on their ambitions. And even if they require none or only a part of these savings, they can use the funds for other important life occasions.
Another great motive behind creating educational funds for children is the anticipation of unexpected incidents or emergencies. Parents always worry about the well-being of their children, particularly in the case of their absence. By early investing in an excellent long-term child education plan, they can rest assured of any worries regarding this matter. Also, some plans have partial withdrawal or loan facilities. So, people can get money whenever they face some medical or financial emergency. It is a good feature of investment that also gives liquidity instead of just corpus growth.
Steps to Plan for your Child’s Required Corpus Money
After understanding the importance of having corpus money for your child, you must have a perfect plan to do so. Several people will suggest various approaches to creating an investment plan for children. But all those will have a few generalized and vital steps. Given below is the step-by-step procedure to plan and create a sound investment plan for your child :
- Find out the estimated average education cost for the most expensive courses.
- Consider the projected inflation rates by the year your child will require the money.
- Fix an appropriate amount based on estimated education costs and inflation rates.
- Add 10 or 20 percent to that amount as a precautionary measure.
- The result is your required corpus money.
- Calculate the money you can invest by finding out your monthly savings by subtracting expenses and other allowances from income.
- Find plans that provide expected corpus money based on the money that you can invest, interest rates, years after which your child will need the money, etc.
- Invest with discipline without any lapses in payments.
You can create the best possible plan to raise enough corpus money for your child by following these steps. During investment, the increase in invested capital has assurance. But there are some points you must keep in mind during the selection procedure to help grow your funds remarkably.
8 Tips to Build Corpus Money for Your Child’s Education
When it comes to investing in your child’s education, there is no limit to the number of suggestions and ideas you must take. Several people opt for different approaches so that their wealth grows effectively. Given below is a brief discussion of nine tips to develop big corpus money for children’s education.
Identify and Prepare for the Education Choice of your Child in Advance
Having a clear idea of which educational stream your child wishes to pursue at the beginning of investment is necessary. It will help you know the educational costs in that particular field. But don’t worry, even if your child hasn’t yet decided upon the preferred field of study. Finalizing a flexible corpus plan will mitigate this problem.
Early planning will also help you grow your corpus substantially. When you enter an investment scheme with the expectation of great returns in a short period, the greatest obstacle is the hefty investment. You can grow an investment to such a high level only when you invest a large amount of money. And considering the fact that if you don’t have any other sources of money or limited savings from the income, it can cause financial burdens. Financial advisers always suggest investing as early as possible to avoid this unnecessary burden.
Invest in Low-Risk-High-Returns Schemes
While looking for investment schemes, you will come across some high returns-yielding plans. But most high returns investments like Equity, Shares, Mutual Funds, etc., have high risks. Try avoiding these instruments if you have a lower risk appetite, as they are volatile due to market dependency. Instead, try investing in some established modes of investment that provide high returns at low risks. Some examples are Fixed Deposits, Nationalised Savings Schemes, Post office schemes, Life insurance policies, etc.
Life insurance policies are one of the best modes of investment for children. They have a combination of capital savings, tax savings, life/health cover benefits, etc. In different cases, life insurances also have the benefits of premium waivers, early payment, lumpsum payment, and monthly payment.
In case you also want investment through insurance policies, you can opt for Unit Linked Insurance Policies. ULIPs are so designed to integrate the benefits of insurance and investments. They invest your premiums into nationalized bonds and give you the authority to choose the preferred bond. Generally, you can select one or more bonds after personally studying their risks elements.
Give Preference to Long term Investments
The benefit of long-term investments is that you can abundantly increase the capital. It doesn’t matter even if you make small monthly investments for long-term plans. The long duration will keep on increasing the maturity returns that you will get at term-end. Another benefit of long-term investments is that you can avoid market volatility seen in short-term plans. Markets always tend to rise even if they have a few bumps on some occasions. Short-term plans are prone to this instability during market corrections. Long-term plans do not have this problem of instability.
Apply Power of Compounding
Albert Einstein recognized compounding as the eighth wonder of the world. Compound interest is a great feature that you must look for in an investment. Several fixed deposits or banking investment plans provide customers with plans that have compound interest rather than simple interest. If you are investing in schemes that allow you to choose between simple and compound interest, always go for compound interest.
Diversify your Investments
When you are investing for corpus money for your children, it is good to diversify your investment. As most of these investments have pro-longed durations, you cannot guarantee returns in volatile schemes. Diversifying your investments into different instruments will help you moderate the risks. So even if one of the invested plans fails, you will have other plans to depend on for your child’s education.
Ensure Reliability of Scheme Provider
Ensuring the integrity of the scheme provider is also as important as the benefits of their schemes. As the intention of the money is for your child’s future, you must verify the credibility of the scheme provider. You can do so by finding out their claim settlement ratio, public popularity, and government affiliation. The rate of return is an integral part of deciding the reliability of investment schemes. Government investment plans by default have a high rate of return. But if some non-government agency claims to provide a similar high return, you must certainly look into it for cases of fraud.
Choose Plans with Maximum Tax Exemption
Another excellent method to increase income from corpus money is to reduce expenses. One such expense is the liability of income tax. But the Indian government gives deductions on several investment schemes, especially if they are for children. Popular schemes which have tax exemption on premium payments and returns are insurances, child savings schemes, PPF/EPF, Post Office deposit schemes, etc.
If you are a taxpayer, you can claim up to one or two lakh deductions in income tax for the premium payments/ contributions of accepted plans, depending on the terms and conditions of each. These plans also have the benefit of tax-free returns. Which means you don’t have to pay taxes for the substantial final income from the plan.
Grab Bonus Returns
Apart from tax exemption, there are other features in an investment plan that increases the final yield. Some plans also provide bonuses for timely payments or advance payments. At the same time, others give incentives like dividends, discounts, prizes, early maturity, etc. These benefits add to the final yield of the investment scheme.
You must assuredly invest in a corpus money plan for your child after knowing all these methods of growing your investments. Investments are always better than savings schemes because they consider inflation. Inflation adversely affects several investment plans by reducing the value of money over time. Volatile investments have the potential to reduce this risk and provide the required funds necessary for education in the future.
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.