As a parent, nothing is most critical than the life of his/her child, especially their future from point of view of their education. Due to constantly rising education fees on yearly basis, early starting and smart investing can be highly advantageous to plan for their Education with a SIP. Systematic Investment Plans (SIPs) are a good vehicle for accumulating a quality education fund on a sustained basis. Below is a description of how you can protect your child’s future using an effective strategic approach.
Step 1: Estimate the Cost of Education
1) The initial process is to calculate the cost of the education of your child (while accommodating inflation). Education costs typically rise by 8–10% annually. For example:
A 4-year engineering program costing ₹10 lakhs today may cost more than ₹25 lakhs in 15 years.
For example, MBA abroad can be quite expensive say at about ₹50 lakhs and up depending on the country abroad and the institution under consideration of the studies.
Use an inflation-adjusted calculator and attempt to calculate as close to the true figure as possible given the age of the child (and time approximation starting from the day the child’s final study is completed).
Step 2: Define Your Investment Timeline
Investment horizon is related to the age of the child and the time period when the child will need the money.
Short-Term Goals (Less than 5 Years): Prioritize low-risk funds to safeguard the accumulated capital.
Medium-Term Goals (5–10 Years): Choose an equity/debt combination fund mix to achieve balanced growth.
Long-Term Goals (10+ Years): Concentrate on equity funds to achieve higher returns with the compounding effect.
Step 3: Choosing right funds to accumulate funds for education with a SIP
1. Equity Mutual Funds
Equity mutual funds are the best for long-term objectives (10+ years). They could achieve higher returns from equity investments and in many cases, outpace inflation in the very long term.
2. Hybrid Funds
These investments include both equity and debt instruments, for which mid-term targets would be appropriate.
3. Debt Funds
In the face of short-term aims, the risk of debt funds is less but higher responsive to market situation.
Step 4: Calculate the Required SIP Amount
After you set the target fund value during the period, a SIP calculator calculates the monthly investment amount you will have to invest. For example:
The target sum ₹25 lakh in 15 yrs. at an annual interest rate of 12%, it requires a monthly investment of roughly ₹6500.
Adapt your SIP contributions as your income increases or if your financial ambitions change.
Step 5: Automate and Stay Consistent
Automating your SIP ensures disciplined investments every month. That said, it is an unavoidable cost, like any monthly payment (i.e. Consistency is key to reaping the benefits of compounding.
Step 6: Review and Adjust
Though SIPs last a lifetime, from a portfolio perspective, occasional portfolio review is important.
It is necessary to monitor the performance of your selected funds at least once in a year.
Rebalance your portfolio after every change in market conditions, or whatever ultimately determines that change, in your portfolio objectives.
Over the long run of pursuits, gradually shift investments to “safer” instruments as the time approaches near completion to safeguard the fund that have been accumulated.
Benefits of Investing Through SIPs for Education
Affordability: Start with a few drops and gradually increase it.
Power of Compounding: Consistent investments grow exponentially over the long term.
Rupee Cost Averaging: The use of SIPs “smoothers” the effect of market noise as it effectively averages the selling price of units sold.
Flexibility: You are free to stop, suspend, or compound your SIP based on your existing financial commitment.
Conclusion
Your child’s education is an investment in their future. By carefully planned SIP strategy you can be certain that they are equipped with the resources and financial independence to translate their dreams into action, without dilution. Get a good head start early on, be consistent and leave your money to grow into a stable education fund.
The perfect moment to act was yesterday, the best is the now. Secure your child’s future now!
