Every parent wishes to be their child’s superhero, and every child sees a superhero in their parents. Every dad is a Superman or Batman, and every mom is Wonder Woman. Children believe that like their beloved superheroes, their parents will always protect them from life’s uncertainties and give them the freedom to be anything they desire without worrying about financial constraints.
But as every parent knows, being a superhero comes with much responsibility. While providing them with the best environment for their emotional growth is a primary concern, what’s equally important and challenging is to protect their dreams and aspirations by investing in the best child education plan to secure their future.
The worst fear of every parent is to tell their kids that they cannot be an astronaut or a scientist or even a doctor simply because their parents failed to plan for their future. And you failed not because you didn’t save enough, but simply because you did not select the best child education plan to secure their future.
In this article, we will cover the ABCs of the best way to save for your child’s future including:
- Why do you need to plan for your Child’s future?
- How much money to save for your Child’s future?
- Which is the Best Investment plan for a Child's future in India?
- What is the Best way to invest for your Child’s future?
Chapter 1: I for Inflation
- Did you know that in absolute terms, the cost of higher education in the US has surged by 500% since 1985?
- A 2014 study by Wells Fargo revealed that the US had 1.4 Trillion dollars in student debt.
- Domestically, the education inflation in India has soared at 35% in the last three years in IIMs.
- As per UNESCO data, the number of indian students studying abroad has increased 163% between 1993 to 2006 and has subsequently risen by 25% between 2006 and 2013.
- The tuition fees of private institutions such as Stanford and Harvard have surged by (absolute increase) by 129% between 1988 and 2017.
India & Education Inflation
|Course||Current Cost||Value after 5 Years||Value after 10 Years||Value after 15 Years|
As evident in the above table, an MBA from a top B-school, which costs Rs 25 Lakhs today, will cost Rs 1.04 Crores in the next 15 years! Remember, Inflation is an invisible villain which erodes your corpus. Hence the best way to plan for a child's future is to account for an additional 1% - 2% inflation rate over and above the household inflation.
Newly released data from Indian Ministry of External Affairs reveals that nearly 7.5 Lakh indian students are studying abroad as of 2018. The primary reason for the growing demand in international education is:
Domestic Competition: With domestic admissions closing at 98% or 99% every year, children with more than 90% marks are forced to settle for second best schools in India, whereas with the same percentage they can get admission in top colleges abroad.
Better growth opportunities: Another reason for a surge in demand for international education is the growth prospects abroad. As seen in the below table, graduates from top universities earned (on an average) a 7-figure salary. Also countries like the USA and Canada offer a dynamic work environment with infinite growth potential.
As evident in the below graph the tuition fees across Top Universities in the World has surged by 10% every year for the last 30 years and is expected to rise substantially at a higher pace as the demand for International Education escalates.
But planning for an international education is not an easy task. While the fundamentals of planning remains the same, there is a substantial increase in the costs. While planning for an international education, apart from the course fees and lifestyle expenses, parents also need to factor in an additional 2% - 3% currency depreciation rate in addition to the domestic education inflation rate.
|Course||Current Cost||Value after 5 Years||Value after 10 Years||Value after 15 Years|
As evident above, a 4-year MBBS program costs around $2,00,000 which is roughly Rs 1.5 Crores, which will cost Rs 8.21 crores in the next 15 years.
How much corpus to accumulate for your child’s future?
While calculating the corpus required to fund your child’s dreams, remember to account for the following:
- Higher Inflation rate : Minimum 2% higher than the household inflation rate.
- Currency depreciation rate: Minimum 2% - 3% currency depreciation rate.
- Hostel, extracurricular activities, food and lifestyle expenses.
Chapter 2: The Early Bird gets the worm
A lesson taught to our children is equally applicable to us as well. While every parent wants to discover the best child education plan, little emphasis is placed on the time factor. In the below illustration, to accumulate a corpus of Rs 1.04 Crores in 15 years, you will need to invest Rs 20,696 every month for the next 15 years.
|Current Age of your child||5 years|
|Years to college||15 years|
|Current Cost of MBA Education||Rs 25,00,000|
|Future Cost of MBA Education||Rs 1,04,43,120|
|Monthly Investment Required||Rs 20,696|
But if you started investing in a child’s future investment plan when your child was only one year old, then the investment amount required would have reduced to Rs 10,452 only!, i.e. a savings of 49.50% for 15 years.
On the flip side, a delay in investment by five years would have increased the investment required to Rs 44,947!
|Delay in Goal Planning by||5 years||10 years|
|Monthly Investment Required||Rs 44,947||Rs 1,26,604|
Therefore the best way to invest money for a child's future is to start as early as possible, preferably as soon as they turn 1.
Chapter 3: Evaluating the so-called, ‘Best’ investment plans for child’s future
Children are every parent’s weak point and marketing geniuses tap into this emotion by labelling every mediocre product as ‘best child education plan’ and selling to unsuspecting parents under the disguise of best investment plan for child future.
They make you believe that these outdated investments are the best way to invest for your child’s future and often parents fall into this emotional trap. Hence while evaluating the best investment plan for your child’s future, you need to pay attention to the real rate of return on these investment plans.
Real rate of return = Investment Rate of return – Inflation.
So, for example, if a child insurance policy claims to provide 8% y-o-y return, remember that your real return is 0% as the household inflation is itself 8%. You need to strive for at least 4% - 5% real return while selecting the best investment plan for your child’s future.
Let us now look at the pros and cons of all these so-called, ‘best child education plans’.
- Land: Real estate investments are considered to be the best way to invest for a child's future, but in reality, real estate investments are highly illiquid. Post sale also, the capital gains need to be invested in capital gains bonds for five years (the ROI on these bonds is 5.5%) otherwise a 20% long term capital gain tax is levied on the gains, which pretty much makes the net return to be a mere 4%-5%.
- Sukanya Samriddhi Scheme: Sukanya Samriddhi scheme is one of the best child education plans available in India if you have a girl child. The scheme offers a high rate of interest rate, typically in the 8.5% + range, but liquidity is a concern as the investment is locked in till the girl child turns 18 or 21 years.
- Public Provident Fund: While PPF investments provide a decent rate of return at 7.1% - 8.5% and can be considered as the best child education plan, like Sukanya Samriddhi scheme, the scheme has a 15-year lock-in period and is not suitable for investors with a goal horizon of less than 15 years.
- Equity Mutual Funds: Equity mutual funds have historically generated a CAGR of 12%-13% p.a. and can be deemed as the best child education plan. But beware of investing in child plans of mutual funds and instead invest in diversified equity mutual funds, to generate the best returns. Also, mutual funds are market-linked investments and need a long time horizon to yield best results and hence are the best investment plan for your child’s future.
Chapter 4: Best Child Education plan in India
As explained earlier, for any investment to be deemed as the best child education plan, it must generate a real return of 4% - 5%. If the education costs rise by 10% p.a. then all the traditional investment options like PPF, Sukanya Samriddhi Scheme, Land, will generate a negative real return of 0% to (-)2.5%. While Equity mutual funds are able to generate a real return of 2%-3%, it is still not enough to secure your child’s future.
You need to target investment options which provide a return of 15% and more. Unfortunately, your traditional investment options do not even come close to delivering a 15% rate of return. Equity mutual funds come close with 12% - 13% return, but when it comes to your child’s future, a 2% difference can be the difference between your child achieving his goals or settling for a mediocre dream just because his dad failed to plan.
But we understand that even superheroes need support, Batman has Robin, and you have StockBasket.
Introducing the real best child education plan in India – ‘StockBasket’, an expertly curated basket of stocks based on 25 intelligent parameters, handpicked by experts after years of research and analysis.
StockBasket is India's first long term buy and hold investing platform to facilitate long term investing based on dedicated data processing and analysis. StockBasket uses a unique proprietary model which processes more than two crore data points every day and based on 25 intelligent parameters decides the quality of stocks and only includes the best stocks in each basket.
StockBasket has specially curated two unique and special baskets to take care of the goal of domestic education and international education.
Domestic Education basket comprises stocks across banking, finance and education sectors. It consists of multi-bagger stocks like Bajaj Finance which has delivered a CAGR of 44.39%, generating a real return of more than 30%!. The investment in the domestic basket starts from as low as Rs 20,000.
Similarly, their International Education basket starts with an investment of Rs 30,000 and comprises undiscovered stocks with unlimited potential like Info Edge (India) Ltd which has delivered a CAGR of 23.64%!