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How to grow 1 Cr for education realistically

05 Jan 2023

The previous generations had it quite easy. There was little competition, and government institutions charged a cheap rate. Students are now being forced to attend more expensive private universities due to increased competition for admission to reputable government-run schools. The expense of a child's education has also been influenced by lifestyle inflation. 

When your level of living grows, it influences the choice regarding where you send your children for further education. Children from rich families are less likely to attend government colleges with inadequate facilities. The most pressing fear of parents is whether they will be able to fund their children's higher education. They can accomplish it if they plan ahead of time and follow all of the essential steps.

  • Be a quick grabber

One obvious choice is to start saving as soon as possible. Not only will the individual be able to save more money, but the money will also grow because of compounding. A framework of Rs 1 crore may appear intimidating, but with a SIP of Rs 9,000 in a 15%-yielding equity fund, it is feasible to save this portion over 18 years.

A delayed start not only results in a lower corpus, but it also puts other financial ambitions in jeopardy. You're more likely to fall short of the minimum amount if you start saving for your child's school in your 40s. To bridge the gap, many parents turn to their retirement funds, but this may be a dangerous choice. Starting early is also crucial due to the changing nature of the job. People in their late 40s and early 50s are increasingly dropping out of the workforce as younger workers, who are more energetic, have the latest skills, and cost less, are ready to replace them.

  • Select the appropriate option

An early start is insufficient. Parents must also spend wisely in order to get the best results. Equity investments are not for everyone, even if they have the potential to provide substantial returns. If you have a high risk appetite, you may allocate as much as 75% of your portfolio to stocks. To combat the high rate of education inflation, a significant degree of equality is required. If you have the time and expertise, you may invest in diverse equities funds or even own stocks.

The right balance of safer investments might make about 25-30% of the portfolio. Because bank deposits are inefficient in terms of taxes, if you pay a 30% tax rate, you should invest in income funds. Instead of being paid interest on a yearly basis, you will only be charged when you withdraw the funds.

  • Play it safe

If your time horizon is smaller than five years, you'll have to depend on fixed income instruments, which are likely to provide a lower rate of return. These, on the other hand, provide assured profits and capital security. These issues become quite relevant in the near future.

  • Examine your portfolio

Once you've set up your portfolio, you should examine it at least once a year. You should also see whether the amount needed to achieve the target has changed. "Tuition fees and living costs are two components of the education aim. Any of them might grow more quickly than expected. You must determine if the inflation rate of 12% that you estimated is a reasonable estimate.

Keeping track of the performance of the funds in your portfolio should be part of your yearly assessment. If a fund is underperforming, don't sell it right away. Stop investing in that fund and start investing in a fund that is doing better. Only after 3-4 quarters of watching the laggard's performance should you decide to sell it.

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