As soon as the child is born start planning for the child's college education. Parents ought to start the education fund preparation as early as possible so that they will be able to exploit long-term returns. The younger the child, the more time you have for compounding to help grow your money.
For young children, start putting money away regularly now, investing in higher-potential-growth securities and mutual funds as you would for other long-term goals, such as retirement. As your income increases, try to increase the amount you're investing. When a child reaches high school age, you'll probably want to begin moving college investments into lesser-risk investments.
Planning for Your Child’s Education Fund
The cost of education at a private college or university is increasing faster than our inflation rate. Depending on the rate of inflation and the period that your child will go to college or university, the amount could be even higher. This can result in a financial drain for a family with college
The following costs will be usually needed:
The cost of tertiary education can knock a sizable hole in your savings
Living expenses, books & supplies
The costs of living expenses like accommodation, food, books and supplies will change significantly.
In our country, traveling expenses is increasing drastically.
Inflation influences the education fund enormously. Depending on the rate of inflation and the period that your child will go to college or university, the amount could be even higher. The longer time inflation is allowed to take hold, the higher will be the cost. For this reason higher education fund is needed. Therefore it is required to plan for your child's education fund as earlier as possible.
Financial options available to generate education fund
Generally it is funded from cash withdrawal, through proper planning it is possible that parents could have some investments made in earlier years. Such investments could be the other financial options available to the parent when required. Another most common option is that of financing the child from family savings.
One more solution would be from education plans. You can withdraw the funds when your child reaches certain ages for instance 18 or 21 years old. One major benefit of such plan is that should the contributor die or be totally and permanently disabled, the future payments due until the plan matures are immediately waived. The child will receive the benefits as defined in the plan, i.e., the child's education fund is secured no matter what happens.
Maximize long-term returns
It is generally agreed that parents should start the education fund planning as early as possible. This will enable them to maximize long-term returns. For instance, if you start with Rs. 1,000 in Year One when your child is born, and the interest earned on your investment is 12% per annum - at the beginning of Year Two you will have Rs. 1,120. If the same rate carries on year after year without the principal balances of each new year being touched, then the compounding effect comes into effect. Thus at the beginning of Year Three you will have Rs. 1,210. By Year Nineteen, the amount will be Rs 6,116.
An investment fund for educational needs has a relatively long-term objective if planned early, and it is set up with the hope that the fund will not be needed in the meantime. Appropriate risk management is also significant. If parents die, the child may not even be guaranteed of an education. Therefore it is very essential to protect the child's welfare should either one or both parents die or become incapacitated. And this can be safeguarded through a plan which incorporates proper risk management - such as an education plan.