How many instances have we come across when a child’s progress has been hampered due to lack of parental support and guidance? Parental support can take many forms as a child develops into an adult. In the early stages of a child’s development, it comprises of the time that a parent can spend with the child. As a child enters adolescence, it is more a function of guidance and channeling of energies of the child in the right direction. As the child becomes a young adult, he begins to understand what is right or wrong for him and starts developing some sort of an idea as to what he wants to do with his life. Based on this idea and consultations with his family and teachers, he draws out a plan for his higher education.

Parental support at the higher educational level comprises of financial support to a large extent. By no means am I suggesting that once an adult, the son/daughter no more requires the love, affection and care which he required as a child. What I am suggesting is that financial back up is one of the strong expectations of every child from his parents. All of you parents probably have a good understanding of this need but you do not plan for it in time. Suddenly a day comes when your child has been admitted to a top college but you are unable to fund his tuition and expenses!

The aim of this article is to bring towards you the idea of “disciplined saving” and the miracles that the “power of compounding” can achieve for you.

According to the figures generated by the International Comparative Higher Education Finance and Accessibility Project, costs to parents for a graduate degree can be summarized as follows:

Rs.	PUBLIC				Private College
	Central university	State University	University College	Govt.College
Total Cost to parents and students	29,541	34,854	33,483	28,629	52,551

(Based on 2001-02 prices)

Considering the following assumptions:

Age of Child: 6 years

Inflation: 5% per year

The cost of education in the year 2019 will be:

Rs.	PUBLIC				Private College
	Central university	State University	University College	Govt.College
Total Cost to parents and students	67,709	79,886	76,747	65,618	1,20,228

Hence, the cost of education is set to increase by as much as 2.3 times in the next twelve years.

So how much does one need to save to tackle these kinds of expenses? Well that totally depends on the type of instrument you might choose to save.

If we look at the instruments used for savings, the most popular ones would be:

• A bank saving’s account yielding 3.5-4% per year  
• A fixed deposit, yielding 8-8.5% per year
• Mutual Funds with varied degrees of return based on the type of fund chosen
• Insurance with yield depending on the type of plan used.

Based on the above yields the following saving would be required:        

Rs.	PUBLIC				Private College
	Central university	State University	University College	Govt.College
Savings A/c (Savings every Quarter)	1095	1292	1241	1061	1944
Mutual Fund (Yearly Saving)	2505	2956	2839	2428	4448
Fixed Deposit (One Time Deposit)	25438	30013	28834	24653	45170

Assumptions:

Rate of Interest in Saving’s A/c: 4%

Rate of Return on Investment for Index Mutual Funds: 12%

Fixed Deposit Rate: 8%

Insurance Plans are too diverse and too varied to be analyzed in one table. One would need to meet an insurance agent to understand what the risk profile of the person is. Based on the risk profile, a unit-linked or traditional policy could be chosen. There is also a choice of premium payment. One could go in for a single premium policy or a regular premium policy.

So which is the best option?

My pick of all the above is the Index Fund. In selecting a mutual fund, I would advise parents to stick to an index fund which is offered my many Asset Management Companies (AMCs). These funds have lower fees coupled with a well diversified basket of stocks. Equity markets may be volatile in the short term, but on a long term basis its’ returns are higher than any other instrument.

Those parents who already have a substantial amount of savings and a low appetite for risk may even go in for a Fixed Deposits which are offering extremely attractive interest rates. I would suggest opting for a reputed bank instead of a cooperative bank as many cooperative banks have had capital adequacy problems in the recent past.

Savings account is the least interest bearing option. It is also does not help you monitor the education fund separately and could lead you to draw from the education fund at times, breaking the discipline required

We can therefore see that disciplined regular savings can go a long way in ensuring that our children will not be disappointed when he requires financial help in continuing his education. Small savings of as much as Rs. 200 odd rupees can build into a large college education fund with the power of compounding at work.

I hope this article is able to turn you into a disciplined saver. Best of luck!