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How to plan a SIP for Your Child’s Higher Education?
Jun 25, 2021
2 mins | Views 16739
Every parent wants to be the best parent and provide all the resources to help them become able individuals. Good quality education is incredibly important for your children’s future. However, are you ready to help your child fulfil their higher education dreams?
The cost of education has been increasing every passing year. And don’t let the average inflation rate fool you. The cost of higher education exceeds the average inflation rate by a large margin.
Even if you don’t have a child, start planning today for your child’s higher education. Investing in the right mutual fund through Systematic Investment Plan (SIP) can be one of the ways to invest for your child’s higher education.
In this blog, we will show you how you can plan for your child’s higher education and start SIP for child’s education.
Set a Target Date
The first step is no-brainer. To know how to invest for your child’s future, you need to know when you would need the money i.e., the target date or year.
The average age for higher education is around 20 or 21. You can set your target year as per your requirements. If you don’t have a kid, you can have a rough estimate of the number of years after which you would have a child and add the number of years accordingly.
Find out the current cost of Higher Education
The second step would be to find out the current cost of different areas of higher education. Your kid’s future plan will change every minute. So, you need to be aware of the current cost of different branches of higher education so that you are prepared to handle everything that comes your way.
Calculate the Target Amount
The cost of education will not remain same. Hence, it is important to calculate the target amount you would need to accumulate for your child’s higher education.
To do that, you will need to know the yearly increase in education costs. The increase in the cost will also differ among the different fields.
You can use the compound interest formula to calculate the target amount.
Target Amount = Current cost X (1 + rate) ^ years
Decide the Mutual Fund Category:
In this step, the target date that you have set in the beginning will come handy. Because the type of mutual fund you need to choose will depend largely on your timeline. Having said that, it is also important to consider your personal risk tolerance when investing in mutual fund.
If your child’s college admission is less than five years away, one can go conservative and invest predominantly in debt mutual funds. Debt funds can be relatively less volatile than equity funds and can help you accumulate money over the short tenure.
On the other hand, if your child’s college admission is more than seven years away, one can go for pure equity funds such as large cap or mid cap funds. Pure equity funds can help to generate reasonable returns over longer period of time.
Calculate your SIP Contribution:
The final step is to know how to invest in SIP for child education. You need to determine the SIP amount you need to invest per month to accumulate your target amount. You can use goal SIP calculator to calculate the SIP amount. Just add the goal amount, investment duration, and expected rate of return to get the required monthly investments. The expected rate of return will depend on the type of mutual fund. Now, you can start investing in mutual fund through SIP for your child’s education.
Aditya Birla Sun Life AMC Limited /Aditya Birla Sun Life Mutual Fund is not guaranteeing/ offering/ communicating any indicative yield/returns on investments.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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