Investment Fund, Trust or Saving Insurance for Education?

Looking for your children’s education is a unique way of sparing yourself a lot of worry in the future. Education is an investment, and more specifically university education is rather an expensive venture further precipitated by the ever-rising tuition fees. To set aside money for your kids’ future education in Mexico, there are several opportunities: savings funds, trusts, and educational insurance.

A common question is: What is the best option? To answer this question, the relative merits and demerits of each must be stated, though the choice that is correct in most cases depends on personal circumstances and preferences of the given individual as well as one’s financial objectives announced for investment. Now, it will be interesting to look at the option and the benefits of each.

What is an Educational Savings Fund?

An educational saving fund is a form of savings account designated for educational purposes. It is a convenient method for saving for children’s tuition fees and usually entails putting money in various investment instruments such as shares and debentures to earn higher returns than a current account.

Benefits of an Education Saving Fund

• Flexibility: All deposit amounts and frequencies are accepted. Thus, there are no strict deadlines or quantitative amounts in terms of sales and volumes, and it is rather a more flexible product compared to the others.
• Low Investment Risk: These are usually mutual funds that are less likely to yield profits in the short run, hence suitable for saving.
• Liquidity: It is easy to get your hands on the money in case of emergencies since many of these funds are liquid.

Flaws in Educational Savings Funds

• Variable Performance: Fund performance will not always be at this level since the returns are based on the current market situation.
• Limited Tax Benefits: These funds could lose their appeal in terms of tax benefits in comparison with the other investment tools.

The tuition funds offer a simple method of saving for education and a low-risk profile while the performance shares many of the features of ISAs but with additional variability.

What is an Educational Trust?

An educational trust is a formal agreement in which a person contributes cash or property to a trust for educational use in the future. Here, a donor contributes cash or other securities, while a trustee invests the amount to make profits. The beneficiaries are normally the donor’s offspring but it can be anyone the donor wishes to give the gift to, including grandchildren.

Advantages of Educational Trusts

• Flexibility: Similar to savings funds, flexible deposit is possible with trust.
• Guaranteed Use: This approach guarantees that the received funds will be spent only on the education of the beneficiary.

Disadvantages of Educational Trusts

• Higher Investment Risk: Investments undertaken by trusts, particularly those sourced from savings funds, are exposed to considerably higher risk than the corresponding funds.
• Institutional Restrictions: The free choice of an educational institution may be limited.
• High Administration Costs: There are usually administrative costs associated with the management of a trust.

Educational Trusts offer a guarantee that the deposited cash will be used to finance education with the provision to deposit at liberal terms, however, the investments they offer have high risks, limitations, and expensive costs.

What is Educational Insurance?

Educational insurance includes life insurance as well as a savings plan. The policyholder makes periodic payments while in the event of the policyholder’s death, the stated amount is paid out to the beneficiaries. Furthermore, a part of the premium is used to buy quotes to get an income and prepare for educational expenses.

Advantages of Educational Insurance

• Tax Benefits: Usually, educational insurance is presented with rather favorable tax conditions.

Disadvantages of Educational Insurance

• High Costs: For educational insurance, it is always recommended that one should be prepared to pay a lot of money for premiums.
• Institutional Restrictions: Similar to trusts, there can be limitations to the selection of the educational institution.
• Limited Flexibility: There is a bit of restriction when it comes to the quantum and frequency of the deposit.

By deciding to opt for educational insurance, one can enjoy both tax advantages and risk mitigation at the expense of higher costs and limitations.

Comparing Options: Which is the Best for You?

The answer to which should be selected depends on the person’s financial condition and priorities. Here’s a summary comparison:

Option	Freedom	Impact on Taxes	Assurance of Utilization	Expenses
Educational Savings Fund	High	Low	Limited & Small No. of Accounts	Low
Educational Trust	High	Higher	Limited	Yes (High Administrative Costs)
Educational Insurance	Low	High	Yes	High

Useful Recommendations Regarding the Selection of the Best Option

Before deciding, consider these practical tips:

• Compare Products: Scrutinize prices, features, requirements, benefits, and restrictions when looking for a relevant service to satisfy your needs.
• Understand Features: Learn the details about the characteristics of the financial instrument, payments involved, and other coverages. Some products have additional bonuses such as specific exceptions for premium payment in circumstances such as death or disability.
• Clarify Doubts: Do not hesitate to ask questions and be very clear on every aspect that the auditor is explaining to you.
• Financial Impact: Determine whether the cost of the product is something you can comfortably make a purchase without incurring certain losses.
• Read Contracts Carefully: Never sign a contract or policy without understanding them or having them explained to you.
• Authorized Institutions: Always transact with the right financial institutions that are legally allowed to market the products.

Conclusion

Every option of savings in education has its own pros and cons.

• Education Savings Fund: If you are looking for an option that is low risk and very versatile, then an education savings fund serves the purpose best.
• Education Trust: If you have funds that you are assured of using but at the same time stand a chance to earn even better yields, an option to consider is the education trust.
• Educational Insurance: This could be applicable if you require financial protection and tax benefits even though it appears to be rather expensive.

Investing under Principal we choose your goal and we direct you towards the fund that will help you achieve your goal. For as low as $1,000 pesos, you can start your financial plan with us and we will have the liquidity solutions if required.

By comparing the options and their characteristics, it is possible to opt for a variant that will suit your pocket and educational plans. Begin with the foundation to the children’s education early, strategize and give them the best future ever.