Parenthood is one of the most rewarding experiences that one can have. Yet it is also true that raising a child comes with huge expenses which can take a toll on your finances if you are not well-prepared. Education is the biggest expense accounting for a bulk of this amount. That is why; a child education strategy is a necessary part of good parenting which allows every doting father and mother to secure a good future for their child.
Rising Cost of Education
The rising cost of education is one of the biggest challenges for parents in today’s era. For example, sending a child to a private school may cost anything between ₹50,000 and ₹6 lakh per year depending on the premium-ness of the school.
But it is in higher education—where costs are rising at a rate of 10-12% per annum—that the effect of inflation is truly stark. Thus, an engineering degree, which came at a cost of ₹6 lakh in 2015, is expected to cost ₹25 lakh by 2030. Likewise, the cost of an MBA degree, which used to be ₹16 lakh in 2015, is expected to go up to ₹67 lakh in the same period.
With education costs mounting and incomes failing to match up, the best way to meet rising expenses is through investing in a suitable asset.
Investing for Your Child’s Education
Investing for a child’s education requires a long-term strategy to allow you to accumulate sufficient funds. Some of the popular investments in this regard are mutual funds, PPF and ULIPs. Each has its own merits and drawbacks as we shall see below.
Mutual Funds:Mutual funds have traditionally given good returns. Some fund houses also offer child plans which may seem quite attractive. But it is important to understand that ‘child plan’ is a marketing term and does not refer to the features of the product as such. It may thus make more sense to opt for the top performer in a fund category than opting for a child plan.
PPF: While it comes with advantages like tax benefits and guaranteed returns, a maximum investment limit of Rs. 1.5 lakh annually is a significant drawback for investors. PPF interest rates are declared by the government on a quarterly basis which may also lead to fluctuations.
ULIPs: ULIPs tend to generate decent returns over the long term. They have been revamped in recent years to address certain drawbacks. They are a good option for single earner families as the child plan is in force for the rest of the policy term even after the death of the policyholder.
With healthy market growth and attractive returns to investors, the commercial property sector has done extremely well in recent years, including the pandemic phase. But retail investors have traditionally found it hard to participate in the market due to the high costs involved. Fractional ownership of pre-leased commercial real estate opens the market and allows them to reap its benefits by making investing affordable.
Fractional ownership can be a good solution for funding child education through its low-risk, high-return investment model. With rental yield of 8-12% per annum, and capital appreciation of 5-10% annually, it can be a tool to secure your child’s future amid rising costs.
Using Fractional Ownership to Fund Your Child’s Education
The magic of fractional ownership is best understood with the help of an example. Let’s say you need a fund of ₹50 lakh to pay for your child’s higher education. You could invest a sum of ₹25 lakh through a fractional ownership platform for a 5-year period. Even at a capital appreciation rate of 8%, it will give you overall returns of about ₹48 lakh which is close to the target figure.
Safe Investment, Zero Waiting Period
With the dual benefit of rental income and capital appreciation, fractional ownership is an ideal investment option for funding your child’s education. The best fractional ownership platforms always run multiple checks on a property to ensure a safe experience for investors. The focus on pre-leased real estate ensures a zero waiting period and brings returns from the first month itself.
Shiv Parekh is the founder of hBits a fractional real estate platform
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