The arrival of a child brings in a lot of happiness. At the same time it also brings along many responsibilities. All of us are responsible when it comes to our children, but uncertainty could collapse the financial health of a family any time. It is sensible to save money for the children’s future and keep them financially secure even during our absence. So steps must be taken to ensure that this does not just end up in a dream.

Step 1: Setting Target Date

You need to start off by setting the target date for your child’s education plan. I feel the average age when a child goes for Higher education can be taken as 20 or 22. You need to fix your target age depending on your expectation and circumstances.

Step 2: Finding Current Cost of Education

The next step is to determine how much does it cost in today’s value for giving education to your child.We harbour different aspirations when it’s the matter of the education of our children. We may have plans for courses like MBA, Engineering or Software courses for our children.

So let’s say for example you determine that Rs 10 lacs are good enough to provide a good education to your child in today’s value .You should be careful about including inflation in your calculations while figuring out the returns. You should also aim for higher returns with low risk.

Step 3: Finding Target Amount

Keeping in mind the rising cost of education every year, you need to determine the amount you would actually need at the end. As per the recent year numbers, Education costs are increasing at 10% per annum.

A decade ago you could have done an MBA at 1.25 or 1.5 lacs, but today it costs more than 12 lacs. That’s more than the average inflation. Education cost in our country has been increasing at higher speed than other things. So you need to consider some figure. We’d like to suggest you to take this as 10%.

Step 4: Estimating the returns you can generate

In this step where every investor has different levels of risk-taking ability and knowledge, it’s important to depend on these factors. These factors would let you choose different investment arenas so that you can generate good returns through it.

Balanced Funds or Debt Funds are for the investors who have a lesser appetite for taking risks. These funds can generate around 10-11 % returns. Others who are able to take more risks and are more interested in finances can invest in the Equity Mutual Funds, ETFs, Direct Equities and can expect returns close to 14-15 %.

Getting more or less return is fine. What really matters the most is, whether it matches up to your risk-taking capacity?

If you are not keen on taking the risks then it’s not recommended for you to invest in risky products. The usual rule defines that an individual who is investing in a long-term plan like one for 10+ years should opt for the equity funds as over that period of time Equities perform best with maximum returns and less risks. Thus, long-term investments should be made in Equities and if the time period is short then you should opt for Equities only if you are a risk-taker. The return on investments that you can expect would range from 10 – 15%. Any amount that you earn beyond that would be a bonus but for general investors it’s tough to get more than 15%.

Returns of 20 -25% should be targeted by more professional investors who have attained advanced knowledge and are thorough with the fluctuations of stock markets and related domains. In case you are a general investor, then it’s safer to be satisfied with returns which will be suitable for you.

Step 5: Calculating Monthly Contribution

Calculating the monthly contribution is the next step in the process. You can use the formula below for the calculation purposes Click Here