Every parent wants to secure the best education for their child, but planning for it isn’t as simple as just saving money. There are rising education costs, inflation, currency fluctuations (for overseas studies), tuition and living expenses, and, let’s be honest—your child’s interests might change over time. So, how do you plan effectively?
Currency fluctuations and inflation in both India and the destination country can significantly impact the cost of international education. For example, if you are planning for a 4-year bachelor program in the United States, you need to consider how the cost of living in the United States can affect the education goal funding. Additionally, currency movements could impact it as well as the Indian Rupee has traditionally depreciated against the US Dollar. As a result, it’s important to have at least some dollar-denominated assets against a dollar-denominated liability.
While traditional education planning focuses on tuition and academic costs, forward-thinking families recognize that education doesn’t end with a degree. In today’s evolving landscape, many children aspire to start their own ventures rather than follow conventional career paths. Setting aside funds to support your child’s entrepreneurial journey can be a strategic decision.
This fund could serve two key purposes: first, to finance skill-enhancement programs like startup incubators, leadership courses, or specialized certifications that complement traditional education. Secondly, it can act as seed capital for their first business venture, allowing them to secure funding within the family rather than seeking external investors. By structuring this as an entrepreneurial fund or a family-backed investment, you provide them with the freedom to explore ideas without immediate financial pressure. With long-term visas also being a challenge, investments made to support a visa for a child to work in that geography may be a part of the plan. Different countries have structured programs that parents can take advantage of.
Term insurance and trusts could also be essential in safeguarding your children’s future. A term insurance payout provides immediate liquidity in the event of an unfortunate circumstance, covering tuition and other critical expenses that are often time-sensitive and non-negotiable. Simultaneously, a trust legally separates business funds from personal liabilities, ensuring they remain protected from creditors and other financial claims.
Where Should You Invest?
One of the best ways to stay ahead of rising costs is by investing in equities, as they tend to offer returns that beat inflation over the long run. However, markets are volatile, and delaying education isn’t an option. Start early and stay invested for the long term to smoothen market ups and downs.
If You Have 10+ Years:
Consider India and international diversified mutual funds, index funds, or even children-specific funds. Children’s funds usually have a lock-in period (usually 5 years or until the child turns 18 years, whichever is earlier). The advantage of children-specific funds is that you are treating this as a separate investment pool for your children’s education. Diversified mutual funds work as well if you can mentally map investments to this specific goal of education.
If Your Goal is 3-10 Years Away:
A mix of Hybrid funds can be selected. These funds balance debt, equity, and sometimes gold, reducing risk while still offering growth. Plus, any portfolio rebalancing done by the fund manager isn’t taxed—you only pay taxes when you withdraw. These instruments are mostly less volatile compared to pure equity funds.
If You Need the Money in Less Than 3 Years:
Use a mix of debt instruments and hybrid funds that have lower equity exposure to avoid unnecessary market swings. The priority here is capital protection over high returns.
Points to Ponder
- Start planning for your children’s education as early as possible, and review financial progress annually. This would provide maximum flexibility.
- Encourage your children to build a profile such that an education loan and scholarships could be options. An education loan increases accountability and a scholarship reduces the burden on your own financial plan.
- Encourage your Children to self-fund masters programs if needed.
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