help create a corpus for crucial stages in the child’s life
One thing that no parent would like to compromise with is the future of their child; while parents have strong intentions about carving a good future for their child, they need to ensure that these intentions are adequately backed up with required resources. Once a child completes his basic schooling, parents should be prepared to back up the education plans of their kids by providing required financial support. Opting for a child Policy is one of the easiest ways to protect your child’s future, but before you do that, you need to do a bit of planning.
The first step towards developing a forecast for the funding needs is to chalk out an estimate on how much does an education in a college of repute would cost today. Be mindful to add the lodging and boarding costs to the tuition fees. This will give you a feel of the quantum of funding support you would need to lend to your child. But remember the actual requirement will be much more, because you also have to account for the inflation. The right Inflation number to use for your calculation would the inflation in the education costs in the last five or ten years.
With the funding requirement in place, what you need to estimate now is how much you would need to save annually, so that you are able to generate enough funds for the future. If you have about ten years in hand before your child goes for his college education, you need to back calculate your annual savings requirement. The most crude way to do so is divide your funding needs by the number of years you have before you child goes for his college education. This would give you an approximate estimate and this would be higher than what you would actually need to save. The exact amount of saving required would be lower and would depend on how you invest your savings.
The kind of avenues where you invest your savings would determine the annual rate of return that you can expect on your savings. However beware that any extra return that you intend to make will have to be supported with a corresponding Risk appetite. If you are looking for low to mid teens returns on your investment, you can opt for mix of debt and equity, while if your risk appetite is low, it is better to invest in a debt fund, which will protect your principal and promise mid to high single digit returns.
It is advisable that you opt for a child insurance plan which will not only help your savings grow, but also provide you the much needed risk cover. In the case of an unfortunate early demise of the parent, the insurance plan would provide your child with the amount of funds that you envisaged before investing. There are many insurance companies which offer online child plan. You can compare child plan online to select the best child plan that fits your needs.