Each and every parent dreams of providing the best for their children and hopes to see them grow into smart, independent and successful adults. Education plays a vital role in grooming your child into a responsible adult. Even though, as a parent, you may want to provide the best education for your child, escalating costs are a major concern. Today, even primary education can cost a few lakhs per annum. In such a scenario, sending your child to a university could be a major life expense.
Rising Cost of Education: If we assume an average inflation rate of 7%, then the cost of educating a child could nearly double in the next 10 years. As an example, if the fee of a BTech course is Rs. 9.20 lakh today, it would cost Rs. 18.10 lakh after a decade. It is therefore important to gather money for education of a child through an investment that has the ability to beat price rise. Equities are known to provide consistently higher-than-inflation returns over the long-term..
Mutual Funds for Educational Planning: The best way to tackle the increase in the cost of higher education is by investing in mutual funds through Systematic Investment Plans (SIPs) as they allow for easy access to the equity market and you can save a fixed amount of money on a regular basis. With SIPs, you can invest a small amount in mutual funds regularly like weekly, monthly or quarterly and generate an educational corpus. As an example, if you need to save Rs. 20 lakh in 10 years and expect to earn 12% investment returns per annum, you can make monthly SIP investments of as modest as about Rs. 8,700 (Source: https://sipcalculator.in/result).
The biggest advantage of investing through mutual funds is that of immediate diversification. You can spread your investments across different asset classes, thus mitigating risk. Further, your investments are managed by professional fund managers with extensive expertise and experience.
Using Systematic Investment Plan in Mutual Funds
Investing in mutual funds through SIP is a very simple process and have the potential to provide exceptional returns, provided you follow the following steps:
Open a minor folio account for your child
The minor will be the sole holder of the account but will be represented by either parents or a legal guardian. The guardian will operate the account on behalf of the minor till the minor turns 18.
Determine your time horizon
Calculate the number of years to your child's higher education. If there is a long-term horizon, you can be more aggressive and invest in equity funds which are known to be wealth creators over a long period of time.As the time for enrolment nears, you need to take a more conservative approach and consider debt investments.
Take into account goals and aspirations
You should plan to accommodate the educational aspirations of your child and the likely cost of education in the future. While prevalent trends may change, the need for saving money for expensive higher education remains the same. Factor in the future cost including inflation.
Monitor the performance of your portfolio
It is very important to review your portfolio on an annual basis. Also, compare your fund's performance with the relevant benchmark as well as with its peers. You may need to make changes in your mutual fund portfolio from time to time to keep the portfolio in line with your goals.
SIPs are a vital tool in educational planning as they allow for long-term investment across asset classes so that your savings can grow to meet the aspirations of your child.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
