Child education-How well are you prepared?

Recently I came across news article about IIM fees for coming educational year. Shocking news is, fees of IIM tripled in just 3 years. So what will be condition of future if the same thing continue? Reason they are putting is “Cost of Infrastructure” and “Quota Reservations”.

Now let us look which reasons of the above two may have the power to reduce the fees in future? 🙂 I think both will grow in the same rate in future also. Then what is the solution to be ready for such steep hike in educational cost?

Need is to prepare well for the future education cost of your child with proper financial planning. But how one need to invest and choose, as currently each adviser is ready to sell the child educational related products? First thing you need to consider is the “Education Inflation” rate. If you consider above IIM fees rates then Education Inflation will be 44% !!! Then so many people may ask is it worth to consider this inflation rate? According to me fare rate is 10% to 15%.

Next thing is choosing the asset class which will generate such a high return in longer run. Solution left out is Equity and Real Estate. I think apart from these two no other asset class generated the return of 15% or more in longer run. Hence your major investment should be in these two classes. But drawbacks with Real Estate investment are- need huge money if you are not ready to go for loan and liquidity issue. It is very toughest thing to liquidate it when need cash. Hence left out option is Equity. But if you are not fully comfortable with equity then better to diversify it in between Equity and Real Estate according to your comfort and risk appetite.

If you are expert in investing directly into equity then it is best option. But you need to be expert and time to track that. Else the option left out is Equity Oriented Mutual Funds. Hence in my view to generate the good amount for your child’s education you must have a major portion of your portfolio in equity.

But never ever go with the product called “Child Insurance” reasons for that, i explained in my previous post in Categories of Insurance. Hope you understood the seriousness of your child’s educational planning. Happy Investing !!! 🙂