It’s never easy to have the correct amount of money set up for your child’s education. Making and tracking the investment is an even greater difficulty.
When it comes to investing, there are a few frequent issues that guardians or parents confront.
To begin, they make ad hoc plans and save money. People still don’t account for inflation, and as a result, predict a lower amount for the schooling aim.
Second, choosing an investment instrument is difficult, even though the primary possibilities are mutual funds, children’s insurance plans, and the Sukunya Samraddhi Yojana (SSY) scheme.
Child plans have not provided returns comparable with schooling inflation (which is between 10% and 15% each year) and have the drawback of covering the child’s entire life (which is not required).
At the age of 18, only half of the collected amount can be withdrawn with SSY. As a result, many parents have begun to invest in mutual funds through systematic investment plans (SIPs).
Third, the operational technique for investing can be time-consuming. Either the parents make the investment in their name for the child’s education or they give funds to their ward’s investment account.
The fundamental difficulty is that while people begin by allocating certain investments for their children’s education, they are unable to stick to those investments. The other question is whether investors will be able to keep up with rising education inflation.
We need specific mechanisms for schooling expenses, such as a college savings fund, just as we need NPS (National Pension Scheme) for retirement. This might be similar to the 529 plans used in the United States.
A 529 plan is a type of investment account that allows you to save for college expenses while also allowing you to make tax-free withdrawals for qualified higher education expenses. Tuition, books, equipment, and boarding fees are all covered.
Most funds offer a variety of investment options, including age-based portfolios, which automatically allocate equities and debt based on the child’s age.
There are numerous advantages to having a college savings account. For starters, it allows parents to save for their child’s education in one convenient instrument. Second, investors don’t have to worry about deciding how much to put into debt or equity because the fund does it for them. Third, because it is an automated investment, it will ensure that the specified amount is invested consistently. Fourth, the account is completely under the authority of the parent. Fifth, close relatives can make contributions to the account in the form of gifts, subject to specified limitations.
Of course, similar to NPS, such accounts will be partially rigid, which is understandable. If non-education withdrawals or early withdrawals are permitted, it becomes easier for parents to dip into these assets for other purposes, similar to how PF (provident fund) accumulations are used to fund home purchases.
Choosing the Right Investment Vehicle
Another big stumbling block for investors saving for higher education is the lengthy operational procedure involved in investing.
The majority of the time, parents will invest in their name to be used for a child’s education later on, or they will give money to their ward’s investment account.
Parents or guardians will begin investing in their children’s education here, but they will lose track if they are unable to stick to the investment path strictly.
Aside from that, when it comes to school expenses, investors may overlook variables such as rising inflation rates.
