With the right environment and parental support, children can achieve greater heights and bigger dreams. So, if your child is showing signs of genius early on, better prepare for her larger than life goals in the future. To fulfil these goals, thankfully there are child plans that help.
The Goal of Higher Education
Before we get into the investment options, let’s get to know the financial goal little better:
The average cost of education from the top universities for undergraduate courses is approximately Rs. 30 lakhs. The average cost of a post-graduation is about Rs. 50 lakhs in present terms. If you consider low average inflation of 3.5% per annum, you will need:
Now that we are clear about the goal let’s having a look at the investment options which can help us achieve them:
1. Public Provident Fund (PPF)
Public provident fund is the safest investment option to fulfil your financial goals which are at least 15 years away from now. The salient points of using PPF for investing in your child’s undergraduate goal are:
If the little genius is your daughter, you can also use Sukanya Sammriddhi Yojana (SSY) to invest in her education goal. The investment features of SSY are similar to PPF, except that you can only operate the account in the name of your daughter.
Limitations of PPF Investment:
While PPF and SSY investments are safe and good for stable long-term returns, they do pose a few limitations:
While PPF is a highly tax-efficient and safe investment, it may just fall short of your goal. Therefore, if you are using PPF to save for your child’s goal you need to ensure two things:
1. Have another investment plan to fill the gap in your financial need and PPF corpus in future
2. Add the goal value to your term insurance cover, so that your child can still meet her goal even if anything happens to you.
2. Guaranteed Saving Plan
Guaranteed savings plans are goal-based investment schemes from life insurers. The best feature of this investment plan is that the future value consists of mostly guaranteed amounts. Other important features of guaranteed plans are:
Since this is a guaranteed investment you will know your maturity benefits at the time of starting this investment.
Limitations with Guaranteed Saving Plans:
Although guaranteed saving plans provide more flexibility to you in term of investment and maturity value, you should carefully consider the following:
3. Unit Linked Insurance Plan
Unit linked plans are way more flexible than both PPF and guaranteed plans when it comes to investment. However, that does not affect the range of benefits in a ULIP plan. You can do a lot more with a ULIP plan than PPF and guaranteed plans.
Here are the benefits of using ULIP to save for your child’s higher education:
Limitations with ULIP Investment
ULIPs suffer a few limitations when it comes to annual investment and taxes. But, with minor tweaks, you can overcome these limitations easily. Here’s how:
To resolve this, you can opt for a slightly higher sum assured than 10 times your annual investment.
ULIPs are the only investment you can use as a single investment option for your child’s goal. However, with other investments, you may need to combine more than one plan to achieve both graduation and post-graduation goals.