Parents should
consider balanced accounts, according to financial advisors. They can also
invest in equity funds and then switch to debt funds, as they get closer to their
target. Assistant Professor Preethi Nair, who lives in Bengaluru, is worried
about her 9-year-old son's future due to rising education costs. Families may
now spend money on digital tools as a result of online courses, and these costs
are consuming a larger portion of the family budget than in the past, putting
more strain on the family.
A survey on
Household Social Consumption: Education was conducted by the National
Statistical Office (NSO) and published by the government in November 2019. It
states that in the current academic year, the average expenditure per student
pursuing a general course in rural areas was $5,240, whereas it was $16,308 in
urban areas.
In rural areas,
the total cost of a technical/professional course was 32,137 dollars, while in
urban areas it was 64,763 dollars. This highlights not only the rural-urban
divide, but also the problem of rising education costs. We are currently
spending more on education because of the current pandemic, says Preethi Nair.
If this trend persists, I'm concerned about the cost of my son's professional
education in the future.
“Parents also
tend to miscalculate education costs,” says KS Rao, Head, Investor Education
& Distribution Growth, Aditya Birla Sun Life AMC Limited. Typically, they
focus on fees as a savings goal, but they overlook inflation in tuition fees,
travel, lodging, day-to-day expenses, and exchange rate volatility (in the case
of international education). Their lack of preparation not only leads to
unfulfilled wishes, but it also places a financial burden on children in the
form of student loans.
Apart from
investing, parents must budget for their children's education. If they want to
cover the cost of education in 10 or 15 years, they must also factor in
inflation. While there are numerous choices, parents should consider investing
in a mutual fund. For all parents who need to prepare for their children's
higher education, mutual funds would be the best option. “Over time, mutual
fund investments outperform all other types of savings. The returns are higher
if the time period is longer than 10 years,” says C Sathish Kumar, CEO of
Tradewise India.
During the
accumulation phases, he says, mutual fund investments provide better tax
arbitrage. Children's Funds or Balanced Funds are good places to start for
conservative parents. Sathish Kumar adds that if anyone is looking to invest
for the next 15 to 18 years, they should consider Midcap and Small cap funds
because they have a longer time horizon.
Children's Funds
(Solution Focused Funds) are a form of solution-oriented mutual fund that
allows investors to invest in both equity and debt-oriented funds, depending on
their risk tolerance. “Ideally, one should begin with equity because it works
well in the long run, then turn to debt as the target term approaches to avoid
any near-term volatility in the equity markets,” explains Rao.
Risky securities
like equity shares will keep you on edge all the time, but mutual funds (i.e.,
Asset Management Companies) will raise money from investors and the team of
mutual funds (i.e., Asset Management Companies) will do a proper review of less
risky company securities, such as government securities, says Reeni Samuel, COO
and HR Head of cloud-based business services platform IndiaFilings.
To minimise
optimum risk, the money earned from investors will be invested in a certain
proportion in the securities described in the above analysis. There will be
some danger here as well, but it will be minimised to the greatest extent
possible. Mutual funds will have higher returns than fixed deposits, but at the
same time, you will be taking more risk. “Risk and reward are inextricably
linked,” According to Reeni Samuel.