Though many parents adopt a ‘pay as you earn’ approach while dealing with school education expenses, higher education needs careful planning.
Start with a realistic budget
Higher education involves significant costs and needs careful planning. Starting early allows more time for compounding, which helps build a large corpus. For example, to save Rs 1 crore in 10 years, one needs to invest Rs 43,470 per month, assuming a rate of return of 12% per year. To achieve the same goal, one has to invest only Rs 10,108 per month if one invests regularly over 20 years.
Higher education involves significant costs and needs careful planning. Starting early allows more time for compounding, which helps build a large corpus. For example, to save Rs 1 crore in 10 years, one needs to invest Rs 43,470 per month, assuming a rate of return of 12% per year. To achieve the same goal, one has to invest only Rs 10,108 per month if one invests regularly over 20 years.
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It may be difficult to predict which course or institution your child will choose in the future. However, you can estimate the likely cost and begin planning accordingly. Remember to account for inflation when calculating future education expenses. For instance, the programme fee for the MBA programme at IIM Ahmedabad was ₹27.5 lakh for the PGP 2025–27 batch. At an assumed education inflation rate of 10% annually, the same fee could increase to approximately ₹1.85 crore after 20 years. To build this amount over 20 years at an assumed annual return of 12%, you would need to invest approximately ₹18,702 per month. The programme fee does not include personal expenses such as accommodation, travel, a computer, stationery and other living costs. Fees for future batches may also vary.
(https://www.iima.ac.in/academics/mba/admissions/indians#financial-assistance-scholarships)
If your child intends to study overseas, consider additional expenses such as accommodation, travel, health insurance and daily living costs. Exchange-rate movements should also be factored into your estimate.
Create an appropriate investment plan
Once you have estimated the amount required, you can create an investment plan suited to your time horizon, risk appetite and financial circumstances. Rather than relying entirely on one investment avenue, consider diversifying across equity, fixed-income and other suitable asset classes. An appropriate asset allocation can help manage volatility while balancing growth potential with stability. However, diversification cannot eliminate investment risk completely. The longer your investment horizon, the more flexibility you may have to consider growth-oriented assets. Your allocation should be reviewed periodically as your financial circumstances, your child’s aspirations and education costs evolve.
Even a well-designed plan can fall short without disciplined execution and adequate financial protection.
Protect the education goal
Before initiating investments, consider the possibility of the untimely death of a parent or permanent disability that prevents the parent from earning and saving for the child’s higher education. To tide over the risk, buy adequate term life insurance with suitable add-on riders on the life of the parent. This ensures that the child’s future does not suffer even if the parent is no longer able to contribute.
Select investments carefully
Once you have adequate term life insurance in place, start investing as per plan. Use investment products that offer market-linked returns such as unit linked insurance plans (ULIPs) and equity mutual funds to generate inflation beating returns. ULIPs help invest in stocks and bonds and offer inbuilt life insurance cover. They can generate healthy risk adjusted returns and facilitate movement across asset classes using tax -efficient switches.
Traditional avenues such as endowment plans offered by life insurers, fixed deposits, public provident fund and Sukanya Samriddhi Yojana (SSY, for a girl child only) can also help. These can reduce volatility at portfolio level and suit the requirements of conservative and moderate risk takers.
Invest consistently
Enrolling in long term investments through the aforesaid products can bring in discipline. Investments structured through monthly systematic investment plan or a monthly ULIP premium payments ensure that savings are channelised into investments and help avoid leakages on account of impulsive spendings.
Review regularly
Importantly, monitor the investments on an ongoing basis. Ideally, at least once a year, take stock of the situation and assess whether your investments are on track. Regular monitoring helps identify gaps, if any, between the investment plans and the actual requirements. It also hands over opportunities to deploy additional funds. For example, a sudden downward move in equities can be an opportunity for long-term equity investors.
As you move closer to the financial goal, gradually reduce exposure to risky assets such as equities by increasing allocation to bonds, fixed deposits and bond funds available under ULIP.
To sum up, a well-defined financial goal of building an education corpus for your child’s higher education can be achieved with meticulous planning and disciplined execution. Start early and give your child the financial foundation required to pursue their dream education with confidence.
**The calculations in this article are illustrative and assume monthly investments made at the end of each month. The assumed rates of inflation and return are not guaranteed. Actual education costs and investment returns may vary. Taxes, charges and product-specific conditions have not been considered. Investment decisions should be based on individual goals, financial circumstances and risk profile. Please consult a qualified financial adviser before making any investment decision.
