How To Plan For Your Child Education Fund – Forbes Advisor INDIA

One of the most important goals in every parent’s life is to ensure a bright future for their children. The road to a promising future is paved with obstacles; It requires careful planning and research as setting up an education fund for your child with skyrocketing education spending can be challenging.

Your life as a parent would be much easier if there were a specific investment tool or basket readily available that could help you plan your child’s educational corpus more efficiently and without spending hours of research. This is how a sample folder works for your child’s college planning.

Costs associated with educational planning

Training costs: The main cost to start educational planning is tuition. Tuition fees depend on several factors such as the selected country, university or college, university ranking, chosen major, etc. Year after year, tuition fees are increasing making it difficult for parents to pay them.

The increase in tuition fees is a direct result of educational inflation. Let’s take the example of IIM Ahmedabad to find out how tuition fees have changed drastically over the years.

livelihood: When children plan to go abroad, or even to another city in the same country, a significant portion of their educational expenses goes towards living expenses. These expenses include monthly rent for their home, grocery bills, grocery bills, water and electricity bills, etc. An additional charge would also be getting health insurance for your child.

Rent for a one bedroom house in Mumbai was INR 26,000 in 2012, which has risen to INR 41,000 by 2021. This shows how much rental prices have risen and will continue to rise in the future.

Traveling expenses: Other ancillary costs include travel, both international and domestic. Airfare costs from India to foreign countries are no joke. In the study country, domestic trips such as applying for a monthly ticket for bus or train must also be taken into account when planning the education fund. Recently, school bus fares have been increased by 30% to 40% in some cities in India due to rising fuel prices.

Other expenses: There may be other expenses such as going out with friends, buying books, study materials or stationery, etc. An additional provision must always be made for such other expenses.

What is a sample portfolio?

A sample portfolio is a collection or basket of assets that use a specific investment approach to target a specific risk/reward trade-off to achieve the investment objective. These baskets are created based on extensive research. Each portfolio has a mix of different asset classes for portfolio diversification. Typically, there are many investment vehicles that you can align with your goals and objectives, but model portfolios offer investors a way to invest with little administrative effort.

Factors affecting a sample portfolio:

1. Investment goal: Always link your investments to a goal. When you do that, you know what you’re saving for, which aids in efficient planning and investing. In this case, the investment objective is your child’s higher education.
2. Available income: You also need to know how much you can put aside to meet the above investment objective. Disposable income is money you have after deducting all expenses, EMIs, and insurance premiums. This allows you to estimate how much corpus you can earn based on your investment style.
3. risk appetite: Risk is one of the main factors affecting your investment journey. You can determine the asset allocation of your portfolio based on your risk appetite. When creating model portfolios, different models are also created for different risk baskets.
4. Investment horizon: Your investment horizon is the period between the date you start investing and the date you achieve your goals. Your investment horizon is based on your desired corpus, which estimates how much you need to invest to achieve the same thing over a given period of time.

Advantages of a sample portfolio:

1. Diversification: With a sample portfolio, you can invest in different asset classes to diversify your overall portfolio. Diversification happens by allocating your investment across different assets in such a way that they balance each other out in times of extreme market volatility. For example, during the Covid period, the transport sector was hit hard while the pharmaceutical industry boomed. So if you had exposure to transportation stocks, that loss would have been offset if you also had exposure to pharmaceutical stocks.
2. Detailed research and analysis: Model portfolios are designed by industry experts and leaders. Extensive research and technical analysis are incorporated into the creation of detailed investment strategies. The fundamentals of the assets are thoroughly assessed before an investment plan is drawn up.
3. Rebalancing: Model portfolios are regularly reviewed to ensure they are meeting their benchmark and performing efficiently. The proportion of asset allocation changes and the overall risk of the portfolio is minimized by the rebalancing. Portfolio rebalancing ensures portfolio volatility is optimized when markets are highly volatile.

bottom line

Starting early gives you a head start in planning your child’s higher education. Your portfolio has the power to grow this way. There are other benefits too; It allows you to start small and with an appropriate asset class based on your risk appetite and helps you build your physique faster and more efficiently.

Every person is different. A single model portfolio may not be suitable for all investors. If your risk-return expectation matches the sample portfolio, then this is the best option for you. With a goal-driven approach, you’ll receive a detailed, tailored portfolio plan that’s also regularly rebalanced to ensure you reach your goal smoothly.