A Guide to Financial Planning for Your Child's Education

1. Assess the Corpus Required
   Before you start financial planning and saving, it is essential to define the goal. Find the current cost of the educational course for which you plan to save. Online calculators will help you determine the value in the future, taking inflation into account to arrive at a possible cost.
   Keeping this amount as a goal, work backwards. At this stage, you can chart your earnings and manage monthly expenses to set aside the funds available for investment planning. Your monthly surplus will give you the exact amount you can allocate towards goal planning.
2. Asset Allocation
   Proper asset allocation lays the foundation of any investment plan. Considering the time horizon for the investment and your risk appetite, allocate the investment into equity and debt instruments. Since education is a long-term goal, you can afford to tilt the portfolio towards equity-oriented mutual funds, as per your risk appetite. 
3. Equity Investments
   Equity mutual funds invest in companies that have the potential to provide higher growth and returns over a long period. They can be volatile in the short term due to situational and economic factors. However, this volatility can be ironed out in the long run. Systematic investment also averages out the market highs and lows. Although past performance is not a guaranteed indicator of future performance, Nifty 50, which comprises shares of the 50 largest Indian companies, has given a CAGR (Compounded Annual Growth Rate) of approximately 11% since its inception in 1996 to 2021.³ You can allocate a portion to fixed income and debt. Here, you must take a balanced approach. A portfolio heavily skewed towards fixed income savings will have a lower upside and be impacted by inflation. You can arrive at a suitable allocation keeping this in mind. To know more about equity investments, consult a qualified financial advisor. 
4. Time Is Your Friend
   When it comes to planning investments, time is a magic pill. The power of compounding works in your favour. The longer the term, the higher the corpus grows, keeping everything else constant.
   For example, Rs. 1 lakh invested today at 12% will become 3.11 lakhs in 10 years. The same corpus of Rs.1 lakh at 12% will grow to Rs. 9.65 lakhs in 20 years. Hence, it is wise to lay the first brick of investment when your child takes their first steps.
5. Take Action
   Avoid delaying the first step in your attempts to find the perfect time, occasion, or opportunity. Plan and start early, even if you are unable to allocate the required amount every month.
   Begin with an amount which you can easily save. Keep adding gradually to the sum every year to reach the monthly target value. Further, you can opt for a systematic investment plan (SIP) in mutual funds, where a fixed amount is deducted automatically and invested in the selected funds. The minimum amount that you can invest through SIP is as low as Rs. 500 p.m..⁴
6. Review the Portfolio
   Monitoring your portfolio is as crucial as taking the first step. Review the performance of funds and investments regularly. If required, make changes based on returns, risk rating, and any other changes in the investment structure.
   Check the performance of the fund compared to its peers and index. Information about a fund and its composition, return, and risk is available on the fund’s website and public platforms. Keep track of the corpus using apps or a simple tracker every year.
7. Near the Goalpost
   When the goal is within five years, liquidity becomes critical so that funds are available at the right time. Then, you may have the time to ride out any volatility that may affect the equity part. Start shifting the corpus to fixed income instruments as you inch closer to your child’s educational goal. It is essential to make sure the money is not invested in products with longer lock-in clauses like recurring deposits, PPF (Public Provident Fund), or unit-linked insurance plans around this time.
8. Life Insurance
   While we plan for goals and the future, life sometimes throws a curveball and jeopardizes the best-laid plans. It is pertinent to have adequate life insurance cover to protect against loss of income due to death or disability. Buy comprehensive term life and health insurance covers to mitigate such a risk.
   The earning member’s demise can derail the entire financial plan and set back the child’s future educational goals. Buy life insurance early and take a sum insured that can replace the monthly income and major life goals in case of an eventuality. A term plan provides a life cover at a nominal cost.

A well-carved and executed financial plan will rid you of your apprehensions. It will allow you to enjoy peace of mind and spend time with your children before they fly out of the nest. Your foresight and planning will help give wings to their dreams.