Arjun is a lucky boy. His mom, Priyadarshini Anand, 31, a Tata Steel executive, has a full-fledged education plan for her four year old. She has been putting aside Rs 1 lakh every year towards this, since the year he was born. That's a lot of money already, and will be a mammoth amount by the time Arjun is ready for his TOEFL and sat. American Ivy League colleges cost upwards of $20,000 a year, and even with a scholarship, the cost could be staggering. With some sharp planning and wise investment strategies, you can get there. The point is to start early, for this can make all the difference, instead of scrambling towards the end. Remember, education remains the world's best predictor of future earnings potential (often, success potential too, as measured alternatively). And your kids will be more ambitious than you ever were. Moreover, they'll be 'global' in a manner that today's adults can't even imagine. So if Ivy League it is, Ivy League it'll have to be. Getting admission in itself is a global-scale achievement, and you wouldn't want the issue of expense dampen your child's dreams of global glory, now would you?

Are You Convinced?

Read on. First of all, both you and your spouse need to sit down and draw up a rough joint monthly financial statement to ascertain how much money you would be able to set aside for the cause on a regular basis. Your own old-age savings are to be set aside separately, so arriving at the appropriate monetary allocation is not an easy task.

A basic rule of thumb: for every rupee saved for yourselves, save another for your child. This is a good formula for a single child, but if you have two kids, then a ratio of 1:2 might become simply too steep. In that case, go for a lower ratio, but to compensate, look for higher-return investment options (with two, you can afford greater risk, given that your offspring cradle is already diversified, in a manner of speaking).

A better way to do it, though, is to calculate the target you need to achieve, and work backwards from that. This involves estimating the present value of the future lumpsum you'd need to fund the child's education, and then finding the right investment avenues to hit the bull's eye. Return levels vary vastly. In general, bank deposits yield too little, these days. Money-back schemes from insurers are none too exciting either. Bonds being taxable at maturity aren't all that attractive anymore. A mix of small savings (PPF and Postal Savings) and mutual funds should do the trick.

Of course, there are no fixed rules. Every set of parents has its own targets, risk appetite and ideas. Here's a primer.

When Should You Start?

While Priyadarshini Anand may have begun earlier than most parents do, the wisest thing she's done is having started so early-right at the child is birth. Time is money, and time flies. A buck saved five years ago will be worth quite a lot 10 years hence. So a neighbour who starts saving when her child's five will have it much harder catching up with Anand. She will have to put aside much more money every month.

Still, no matter how old your child is, it's never too late. Vijay Bhaktani, 41, an executive at acc, for example, has a nine-year-old special child Barun. Bhaktani, a safety-loving investor, invested Rs 7,000 in a UTI scheme last year that should fetch his son Rs 1 lakh when he turns 21. He has also invested in LIC's Jeevan Adhar, an investment-cum-insurance scheme designed for special children. Apart from these, he has been putting money in PPF twice a year.

How Much Should You Save?

Set a target, and map it out against the time you have. This is important. If you need Rs 10 lakh in the education kitty in 10 years, then rough calculations will show that, assuming inflation of about 7 per cent, an investment that returns around 10 per cent per annum will require you to put aside over Rs 8,500 every month-about as much as Anand does.

Sounds daunting? Do this simple exercise. Make your own accounts sheet. Track your regular revenue expenses (on, say, a monthly basis), place it against your income, and then see how much is available for saving (both for your own old age and for your offspring). It goes without saying that you will have to cut down your discretionary spending to make space for this new category. The good news is that as your income rises, proportionately more of it can go towards the savings kitty, assuming that your subsistence needs (which includes lifestyle spending) were met at a lower income level.

How Much Risk To Take?

First of all, estimate your risk appetite. Now, unlike with old-age savings, you can actually afford to play a somewhat higher-risk game here (not making Harvard is not a survival issue). So that opens up wider options. Moreover, you can take even bigger risks if you've got two children. What evolutionary biologists would call gene-transmission risk diversification ('back-up' logic), has a monetary aspect as well. Two kids are likely to be of lifelong financial support to each other, so your headstart-providing responsibility is lower. Plus, there's diminishing marginal savings requirement. By theory, the chance that both (or more of) your kids will need Ivy League funding declines with each additional child.

Your own age, financial stability and prospects would also determine your risk appetite. "The mindset of a parent is very important in determining where she plans to invest her child's education fund," says Hemant Rustagi, a Mumbai-based mutual fund expert. "While equities have been known to have given better returns over longer investment tenures, there is no point in investing a large chunk of the education fund in equities, if you are going to spend sleepless nights over current stockmarket volatility." Assured returns typically mean lock-ins. So be prepared for that.

What Should The Investment Mix Be?

Your risk-taking capacity and the sum to be achieved. These two are the main factors that should determine the investment mix. Irrespective of your risk profile, you should consider allocating some amount of the fund to equities. Over long periods, it's the best inflation beater. If your child is between one and three years of age, and you are looking at investment maturity when the child turns 15, equity is a better bet than if your child is between seven and nine and you are looking at a maturity amount at the same age. "If the investment is made in an equity fund," says Rustagi, "you get the benefits of having invested in equity as well as the flexibility in terms of withdrawal, in case of any changes you may need to alter the education plan since new education courses keep coming up."

Spread your investments across equities and debt, depending on your risk appetite. Also, the longer the tenure, the greater should be the allocation to equities. A young couple might want 60 per cent of the money in equities, while an older, more conservative couple may opt for just 20 per cent. For equities, mutual funds are a good route. They offer dynamic asset churning, high flexibility and a nice tax deal. Not to imply that you should go for children-aimed funds, of which there are many. Judge schemes for their potential. For debt, PPF, postal savings and debt fund investments could come in handy.

In all, you'll need to keep a sharp eye on investment opportunities, just as you do for any of your investments. The difference here is the objective, which spells out the target lumpsum for you and also gives you some additional leeway on risk. You may make mistakes. But take them in your stride. The important thing is to get going.