A parent always wants the best for their child. Nothing would make a parent happier than knowing that their child has secured their future. Though a career path that a child chooses depends on them, and a parent can’t help much in that scenario, a parent can definitely help their child secure their future by providing them with quality education that acts as a catalyst in such situations. With the rising cost of education at an exponential rate, it is important that a parent does proper financial planning to prepare and save for their child’s higher education. In investment world, the earlier you understand the importance of saving and investing, and the earlier you begin with your investment journey, the more benefits you’d enjoy. However, if you have missed the early bus to saving for your child’s future, do not worry. Nothing is lost. You can still provide for a quality education to your child. In this article we will understand how you can save enough for your 5-year old child’s higher education.
Provided that your child is already 5 years of age, you have plenty of time, say about 15 years to accumulate a significant corpus for your child’s higher educational costs. For such investors, SIP or systematic investment plans could be a good investment option. SIP mutual funds have the potential to generate significant corpus even by investing a small, insignificant sum of money n a regular basis. To evaluate the monthly SIP amount, one needs to calculate the investment corpus one hopes to achieve over a period of time. Currently, the cost of higher education in India is somewhere around Rs 10 lacs. Adjusting this amount against 10% inflation cost for education, one would need to accumulate a sum of around Rs 42 lacs to cater to their 5-year old child’s future higher education needs.
Using a mutual fund return calculator, you’d find that assuming an average return rate of mutual fund investments at 12% per annum, one would need to save around Rs 8,407 per month for a period of 15 years to create a corpus of Rs 42 lacs. You can also choose to increase your SIP investment amount each year as your income flows increases over time with the help of step-up SIPs. Step-up SIPs help investors to increase their SIP investment amount regularly for a fixed period either by a fixed investment amount number each year or by a fixed investment percentage each year. Doing so will help you to either reach your financial goals earlier or decrease the financial burden on you by decreasing your investment amount.
One more thing that can help your investment planning is not waiting till the end moment to redeem your mutual fund investments. A better investment strategy would be stay invested for say 12 to 13 years, and then gradually de-risking your investment portfolio by systematically withdrawing your mutual fund investments with the help of SWPs (systematic withdrawal plan). This will ensure that the accumulated investment corpus does not get affected with market volatility. Happy investing!