Investment Planning for child education
Out of many financial goals that the individual has, the emotionally most important one is education of child.
You may imagine a scene from old movies wherein a parent toils hard overnight to have kid to be educated.
Well today more than working hard one needs to work smart and while planning towards children’s education fund, it is essential to work backwards and start early, while keeping inflation in mind.
For a private college education in India, the fee today can be anywhere between Rs 8-12 lakh for the entire graduation course and reaching up to Rs 20 lakh or so for post-graduation in India. Those figures are indicative only and may change depending upon course/college reputation.
Ideally one needs to have an investment horizon of at least 10 years so as to invest every month towards this specific goal to help achieve the target amount.
As one gets closer to needing the funds (May be one year earlier to the year of requirement) one needs to move the corpus to a debt fund to safeguard the capital. The monthly systematic investment plan (SIP) amount should be such that your equity investment grows to achieve the target amount, net of taxes.
Movement to debt fund one year earlier than year of requirement will ensure that corpus is protected from turbulences faced in equity.
For an example –let’s take a goal of accumulating a total of Rs 20 lakh, an amount which is very easily used up in a post-graduation in India or an under graduation abroad.
| Expected Return (CAGR) | 10 Years (Investment per month) | 15 Years (Investment per month) |
| 6% | Rs 12204 | Rs 6877 |
| 8% | Rs 10932 | Rs 5780 |
| 10% | Rs 9763 | Rs 4825 |
| 12% | Rs 8694 | Rs 4403 |
| 14% | Rs 7720 | Rs 3301 |
This way, you must start early and stay invested in a disciplined manner. It’s also important to not withdraw money from corpus planned for one financial goal towards other financial goal. Hence, plan and invest accordingly for each financial goal.
When one invests in equity mutual funds, there will be volatility in short term though in longer term if one stays invested one may have considerable returns in equity.
PS- Likely returns will depend upon asset allocation strategy which depends upon one’s risk profile. Risk Profile is derived out of risk attitude and risk capacity.
