Even after lifelong savings, many parents find it difficult to send their child abroad as the savings are usually not sufficient. The education costs over the years have been on the rise, not only for higher education abroad but also for secondary education and higher education in the country. However, experts suggest with proper planning, parents can ensure their child’s educational dreams. Education loan is an ideal option and most parents nowadays opt for it to finance an education abroad.
If you are also planning for your child’s education abroad, here are a few things you need to follow;
Estimation of the total cost – While calculating the entire course's cost in current times, don’t just consider the college or university fees, take into consideration other expenses. This includes tuition fees, living expenses, traveling cost and miscellaneous fees. This way you will not fall short of money later and will know the approximate amount that is needed for your child when he/she reaches the age for higher education. Depending on the tenure of your investment, don’t forget to factor in the inflation and rupee depreciation, while calculating the total amount needed.
Source of funds – There are various ways to fund this cost. First, you need to decide how you want to fund this cost and how much of this fund should you contribute. The first option that comes in mind to fund this kind of expences is education loans, but keep in mind that most lenders usually fund around 80-85 per cent of a course's cost. This implies that around 15 to 20 per cent of the money needs to be paid by the parents/guardians.
Experts suggest, with proper and timely planning, parents could also solely fund this type of cost, by timely investments in mutual fund SIPs, or partially paid by investing and taking an education loan for the rest. This, however, depends on the tenure as to how far is the child away from the time he/she goes abroad.
Start investing as early as you can – If haven’t yet started saving for this cost, you should start as soon as possible. To accumulate a good amount of corpus even to opt for a loan in the future, start investing at the earliest no matter what your child's current age. Delaying to invest for these expenses might not get you the desired corpus, or you could strain your finances to achieve that corpus.
For instance, if the total cost is Rs 1 crore to send your child’s education abroad, and currently your child is 3 years old, then you have an investment horizon of 15 years. So, investing in an equity mutual fund SIP of about Rs 21,000 monthly would get you your desired money, with expected returns of 12 per cent. However, if you wait till he/she is 1o years of age, your SIP amount will be pushed to Rs 65,000.
Review your investments – Try to review your investments periodically. Investments should be reviewed at least once or twice a year. Reviewing investments means comparing the fund's performance with its peers and benchmark indices. This way investors can spot the nonperforming or underperforming funds. And timely those funds can be replaced with better performing funds, to reach the desired goals.
Shifting corpus to less risky avenues – As you near your goal, experts suggest investors should shift their invests in less risky avenues. Once you are about to reach your desired corpus after investing for 12-15 years, try to move the corpus to a less risky fund, so that you don’t risk losing it.
Investors can consider shifting the accumulated funds into either a savings account or debt mutual funds, as these options provide a high degree of liquidity and safety, and also offer interest rates up to 7.25 per cent.