Child Plans: How to plan for your Child's Education

  • Summary of the post

    1. Child Plans available and marketed by different companies are not great
    2. Create your own child plan
    3. Mutual funds can be a great way to create a Child Plan for your Childs future
      education or other requirements
    4. Learn how to create your personalized child plan

    Providing your child the best possible education is the dream of every parent and to make this dream into a reality you would need to start planning now. With increasing costs of education, you need to plan for your Kids education in the same way as you create plans for buying a car, buying a house or making plans for your retirement, one of the key goals a good financial plan should have is to finance your kids education and let me explain the reason why

    • While retail inflation is hovering around 3-4 % in India, Inflation in education costs is much higher so education costs will rise faster hence require differential plan
    • Large expenses for kids education come together in blocks and are not equally spread out over the life time, for e.g. coaching for competitive exams and graduation costs are distinct blocks.
    • Education expenses can vary a lot if you plan to send your kid for international education.

    Ok now let’s discuss how we can go about creating a Financial Plan for Child’s education

    Steps to Create a Plan for your Child’s education

    1. Understand when the money will be required
    This is the most important thing when you set up a financial goal  for your Child’s education, basically, there are 4 blocks  you would need to take care

    • Preliminary education till high school ( this is ongoing linear expense)
    • Coaching for engineering/medical/professional courses
    • Under grad education ( Engineering/Medicine/Other professional courses)
    • Post Grad education( Optional)

    2. Understanding how much money will be required for each milestone
    This is the most  important  step for this you need to understand following things

    The current cost of the education milestone: Let’s say if we are looking to plan for undergraduate education for the kid you can use benchmarks for different education streams like engineering at IIT costs around 12 lacs for 4 years similarly MBBS can cost you anything between 10 lacs to 20 lacs for 5.5 years.
    Assessing Future cost ( when your child will require): Next step is to calculate how much would it cost let’s say undergraduate education in future. The way to calculate is as follow
                Amount Required in Future = Current Cost *( 1+R)^n                                                 Where R = yearly increase in the cost of education;n= number of years to your goal.

    So let’s say if your Child is 5 years old and he is going to start her graduation at 18 then take as 13 years  this will ensure you have money available up front

    R-> also needs to be chosen carefully a lot of financial planners will use current inflation rates but education inflation is much higher in India, I would suggest using 10 % inflation for your calculations.

    Let us take an example. Median Fee for an engineering program in India is approximately 10 lacs today.

    Median Fee for an engineering program in India: 10 lacs (approx)

    Average Inflation in the coming period: 10%

    The cost of Engineering Education 15 years down the line : 41 lacs (approx)

    3. Creating an investment plan to achieve your goal.
    Now that you know the exact amount that you required for education’s expense next steps should be to create an investment plan to achieve the goal. Investment plan should start with what is the returns you can generate from your investment portfolio.

    While there are lot of Child plans available in market most of them give sub optimal returns and have high fees/expenses. I would recommend you create a custom plan for your child with long term growth portfolio in mutual funds.

    4. Arriving at the monthly saving you require to meet the goal
    Now that you know the return you can generate from your portfolio and the final value you require to meet your goal, next step is to calculate periodic investment you need to make now to achieve the goal.

    You can use a basic Final value formulae to calculate the same

    Investment Per Month (I) =  [FV*r] /[(1+r)^n]-1]

    Where r = expected rate of return

    n= number of months you will make this investment for

    Achieving your financial goals requires not just good planning but a disciplined execution. So once you have the right plan in place ensure you meticulously follow on the same.

  • Please give plan

  • Hi Rohini,

    We are not personal financial advisors. We suggest you to check with a personal financial advisor and plan for your child accordingly.

  • Banned

    There are many companies/banks offering child plans but the best plan according to me is our own child plan. I have a solid child plan. For every child, i have opened a bank account and every month i put some money in it. I have not requested the ATM card or the cheque book. In this way, the money will be safe.

  • @sdadwal Hi, Can you refer some best saving schemes for girl child in India. I am looking for a good investment plan for my daughter. Are there any Government schemes for girls to support in their education and growth? I have heard about Sukanya Samridhi Scheme. But, is it worth investing in such schemes? Please give your suggestion.

  • This is one of the most hot issues in society right now. People tend to get confused early when they think about the future of their Child's education. The institutions are also increasing there fee every 6 months which is one of the reasons why the parents are worrying too much.Thank you for telling people the right way to chose plans.

  • @sdadwal Analysing our financial goals is the primary step in financial planning. Once we are clear of our goals, we can plan to save and invest in that particular direction. Providing good education can be an expensive thing in India. So, if we plan well in advance, we can manage to save for children education and our retirement needs also.

  • We need to admit that the upcoming era will be more difficult than this one. The prices of all things are going up. The cost of education will increase with time. We need to save for education of our children and do proper financial planning.


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