How will a Child Plan help in Combatting Increasing Education Cost

It’s safe to say that a child’s education has emerged as a primary cause of concern for parents. This is evidenced by the fact that the escalating costs of education are eating up a major share of the average Indian household budget. In fact, surveys reveal that about 65% of parents land up spending half of their monthly salary on school fee, extra-curricular activities, educational trips, electronic gadgets, and other expenditures related to the school curriculum. By the time their teenage child graduates from high school, parents would have already spent more than 18-20 lacs on an average. Of course, higher education is a different story altogether. To understand the situation better, let’s have a look at some of these startling figures:

Presently, a four-year engineering course costs approximately 6 lacs. In 10 years, the cost is likely to touch 15.6 lacs. By 2033, it would cost a whopping 33 lacs to get an engineering degree!

MBA course that roughly costs about 16 lacs today shall jump to 41.5 lacs in 10 years from now. By 2033, the cost would have reached a staggering 88.9 lacs approx considering inflation!

In the department of medicine, the expense of completing a course shall hike from the present 12 lacs to 66.7 lacs in a matter of some years down the lane

Overall, the cost of higher education will continue to rise at 10-12% year on year.

While the cost of sending a child to school has seen a sharp surge of about 160% in 8 years, the average annual income of parents has risen a paltry 30% during the same period. Owing to the increased competition and lifestyle inflation, children have not been displaying much eagerness in attending government colleges having minimal facilities. The influx is towards costly private-run institutions. Further, the wish to pursue an overseas education adds a new dimension to the situation. The expense of completing a course in a foreign land would cost about 3-4 times more as compared to that in India! The total expenditure would primarily depend upon the duration of the course, stay, traveling, and the choice of university & country.

Considering this scenario, it is imperative for guardians to plan for such massive cash outflows of raising a child

Investing in a Child Plan turns out to be the ideal solution!

Let us now delve on how a child plan helps to deal with this situation of the mounting costs of education:

Builds a Corpus for Meeting Education Expenses

The primary benefit of buying a child plan is that even with minimum premium payment, one can build a corpus of as much as 10 times the amount invested in the plan. This lump sum amount comes handy once the child is ready to take up higher education. For instance, a parent who wants his/her child to attain an MBA degree, then, according to the statistics mentioned above, there would be a requirement of almost some enormous lacs of money, if the child were to pursue the course in 2033. Now, starting investing early on child plans helps to build a corpus of such an amount at the end of the policy term to fund the course fee.

Facilitates Compounding Given that the rate of inflation in education is skyrocketing, it becomes imperative for parents to invest in a tool, which offers them the benefits of compounding. In this context, a child plan is the perfect example, which works on this principle of growing wealth. If started early, the money stays invested for a long period of time, and the policy gradually starts gaining from the power of compounding. This helps in generating a huge amount of money at the time of policy maturity, which can be utilized to support the child’s education needs.

Offers a High Level of Equity Returns for Combatting the Rising Costs

A child plan gives guardians the opportunity to invest in equity instruments under unit linked child plans. Those having a risk appetite can opt for investing in equity funds or balanced funds, and enjoy the perks of high and medium returns on their investment. The key is to start early and stay invested over a long term horizon, so that the volatility in returns flattens out.

Dynamic Fund Allocation Safeguards the Capital

Child plans allow policy holders to opt for their preferred funds based on their risk taking capacity and investment appetite. Further, they also offer the options of Systematic Transfer Plan and Dynamic Fund Allocation, which safeguards the essential capital against market instability. By parking the money in equities during the initial years, these plans enable policy holders to tap the maximum profits. Then, during later years, the funds are switched to more secure debt instruments, thereby stabilizing the profits already earned. These features ensure that the capital does not erode and can be used when needed the most to meet the child’s education expenses.

Can be used as Collateral for taking loan

In situations, wherein parents need additional funds for financing overseas education, a child plan may be used as collateral to secure a loan.

Annual payouts for school fee

Child education plans also offer periodic annual payouts for meeting the school fee of the child. This is particularly useful in the absence of the parents. Most child plans provide 10% of the sum assured via annual payouts, so that the child can continue going to school, even if the parents are not around.

It is important to note here, that a child plan can help in combating the rising education costs, only if the policy holder embraces the idea at an early stage. One should always remember that each additional year of investment translates into a bigger corpus, thus providing better financial assistance in meeting the costs of providing a good education to the child.

Source: http://mihir2014.tumblr.com/post/145146618031/how-will-a-child-plan-help-in-combatting