Never miss a great news story! Get instant notifications from Economic Times Allow Not now. Higher education costs may be rising at a fast clip, but Delhi-based Balbir Kaur is not perturbed by the projections of future costs.

Balbir and her husband Puneet are saving for their son Jivvraj's higher education. They started small last year with SIPs totalling Rs 5, in three mid-cap equity funds. But Balbir has a neat strategy in place. We plan to keep increasing this every year as our income goes up," she says.

The benefits of an early start cannot be stressed enough when you are saving for a long-term goal. If your child is years old, you have a good years to save. Starting early helps you amass larger sums that may not be possible later in life.

Tanwir Alam, MD, Fincart, points out, "The multiplier effect in the power of compounding comes from the investing time horizon; longer time horizons have a higher multiplier effect. For instance, if your target is Rs 25 lakh, you need to save only Rs 5, a month if you start now. But if you wait for six years, you will have to invest Rs 9, a month to reach the target. Wait for three more years and the required amount jumps to Rs 23, Worse, you may not be able to invest in certain assets if the time horizon is too short.

The investment strategy changes if your child is a little older. Since you have only years to save, the risk will have to be lowered. Instead of equity funds that invest the entire corpus in stocks, go for balanced funds that invest in a mix of stocks and bonds. If your risk appetite is lower, monthly income plans MIPs from mutual funds can be a good alternative. However, the returns are also lower than those of equity funds.

Which investment option is the best for your child's future? - The Economic Times

For the debt portion, start a recurring deposit that would mature around the time your child is scheduled to apply for college. These funds will give nearly the same returns as fixed deposits but are more tax efficient if the holding period is over three years. It is also important to review the progress of your investment plan. For parents of teenaged children, the investment strategy should focus on capital protection.

With the goal barely years away, you cannot afford to take risks with the money accumulated for your child's education.

Kolkata-based Sanat Bharadwaj started investing in a mix of mutual funds and bank deposits for his son Siddhant's college education almost 12 years ago.

This shift from growth to capital protection is critical. The percentage points that equity investments can potentially give is not worth the risk. As mentioned earlier, the cost of higher education is shooting up. Many parents who started late or chose the wrong investment vehicles may find themselves woefully short of the target. If you face a shortfall, don't be tempted to dip into your retirement corpus to fill the gap. This is a mistake. Instead, you should take an education loan with the child as a co-borrower.

Apart from keeping your retirement savings intact, it will inculcate a savings discipline in your child after she takes up a job.

The repayment starts after a month moratorium when she completes her education. Banks offer loans of up to Rs 20 lakh for courses in Indian institutes. If your child is keen on a foreign degree, it would require a larger corpus. While banks are willing to lend up to Rs 1. When saving for your child's education, do remember that the whole fianncial plan depends on regular contributions by you.

5 Long Term Investment Options for Your Child

But what if something untoward happens to you? The entire plan can crash. The only way to guard against this is by taking adequate life insurance.

A term plan does not cost too much. For a year old person, a cover of Rs 1 crore will cost barely Rs 10,, per year.

That is too small a price for something that safeguards your biggest dream.

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NIFTY 50 9, Select Portfolio and Asset Combination for Display on Market Band. Download ET MARKETS APP. Drag according to your convenience. Higher education costs are shooting up.

If you don't plan well, you could fall way short of the required corpus when your kid is ready for college. The class of of the Indian Institute of Management-Ahmedabad will pay Rs Even undergraduate courses have not been spared. The tuition fee for engineering courses in the Indian Institute of Technology IIT has been hiked from Rs 90, to Rs 2 lakh per annum. This is just the tuition fee—the total cost is much higher. By , the same would cost more than Rs 30 lakh.

If you have not planned well, you could get a rude shock, falling way short of the required corpus when your kid is ready for college. In fact, for engineering and medical aspirants, the costs start even while the student is in high school.

Coaching institutes charge anywhere between Rs 80, lakh a year for preparing the student for the entrance exam. This sharp spike in fees is a wakeup call for parents saving for the higher education of their children.

Parents need to realise it is going to be an expensive affair," asserts Nitin Vyakaranam, CEO, Arthayantra. This week's cover story is aimed at parents who are saving for their children's education.

The investment options before them will depend on the age of the child. If the child is years old, the investment choices and strategy will be different than for a parent whose child is years old. Our story lists the most appropriate investment options for three broad age groups and the strategies to be followed at each stage. Choose the one that fits your situation to achieve your dreams for your child's higher education.

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