Today is National Parents’ Day. It is usually celebrated on the fourth Sunday of July. It is blessing to be parent which comes with lots of responsibilities. As a parent everyone wants to provide their children with the best of everything in the world. We need to prepare in advance for their life needs till they become self sufficient and independent. Education is one of the most important aspects in the growth and development of the children, and needs lots of planning with the higher education cost going up; it has even become a herculean task to provide for the best education to our children.
Education has become one of the major expense heads for Indian households. Today, sending your child to a good private school means an expense of around Rs 2 lakh per year. Higher education is even more expensive.
As per statistics, the cost of higher education has been rising at a rate of around 10-12% per year. This means an engineering degree which used to cost Rs 6 lakh in 2015 will cost Rs 16 lakh in 2025 and Rs 25 lakh by 2030. Similarly, an MBA degree, costing Rs 16 lakh in 2015, is estimated to cost Rs 42 lakh in 2025 and Rs 67 lakh in 2030.
To plan better for our children’s education, we need to start investing in the right tools. What better than a “Parents’ day”. Take a look
The best way to accumulate the necessary amount for your child’s education is through investment in a suitable asset. The selection of asset and amount allocation should be done after due consideration to factors like target amount, investment horizon, risk appetite and so on. Some popular investments in this regard are PPF, mutual funds and ULIPs.
PPF is among the safest investments offering tax savings and guaranteed returns. The interest rates are declared by the government on a quarterly basis. Its key features include a lock-in period of 15 years and the capping of investments at Rs 1.5 lakh annually. This limits the maturity amount from the product and restricts its utility as an education fund.
The markets are flooded with mutual funds which promise good returns for child education. These are generally good products, but they are more suited for investment purpose as they are subject to market risk. But if you plan to invest in a mutual fund, don’t limit your choice to children’s plans. Pick the best fund overall after taking all things into consideration.
ULIPs offer another way to secure your child’s education. Despite the bad name they have earned in the past, the products have been revamped and are now comparable to mutual funds. These new-age ULIPs are particularly useful for single-earner families where the child plan is in force for the rest of the policy term even after the death of the policyholder.
Can Fractional Ownership offer a Solution?
Fractional ownership in commercial real estate is not generally counted among the regular choices for education planning. But the fact remains that it can be a useful tool for securing your child’s future. It is a relatively new concept in India and is designed to enable the participation of retail investors in the profitable commercial real estate sector.
Investment in commercial property has traditionally been out of the reach of retail investors due to high barrier of entry. Fractional ownership overcomes this limitation by dividing the cost of the property into smaller parts to allow retail investors to participate in the market.
Dual Returns from Properties
Dual returns in the form of rental income and capital appreciation make it a lucrative investment option. Commercial real estate tends to provide rental yields of around 9% and capital appreciation of 5-10% annually which is ideal for the purpose under discussion.
Let us understand how it works with the help of an example. Let’s say you are planning to create a fund of Rs 50 lakh for your child’s higher education. For this, you need to invest a one-time amount of Rs 25 lakh for 5 years with a fractional ownership platform. Even if you assume capital appreciation at a modest rate of 8%, it will give you overall returns of around Rs 48,00,000 which is nearly the target amount. Dual returns from fractional ownership make it possible to fund your child’s education through school as well as college. In this sense it is superior to products like PPF and mutual funds which offer a one-time payout. The rigorous checks applied by fractional ownership platforms assure investors of quality investments with good market value.
Disclaimer:Shiv Parekh, the founder of hBits, a fractional real estate platform. Views expressed are personal.