Systematic Investment Plans (SIPs) in top mutual funds can help build a robust financial foundation for their future. With the rising cost of education, starting early and investing wisely is crucial to ensure a bright future for your little ones. This article explores how SIPs in top mutual funds can be employed to plan and fund your child’s educational journey, offering insights on investment instruments, periodic increments, and rebalancing strategies for a well-rounded approach.
Start early for maximum benefits.
It is best to start planning for your child’s education as early as possible. Even if your child is a few years old, create a SIP in top mutual funds so that money gets adequate time to grow before expenses start. An early start allows maximum gains from the power of compounding. Use an education planning calculator to determine how much you must invest each month to fund your child’s education at different stages.
Choose the right investment instrument.
Equity funds are the ideal choice for long-term goals like education. They have the potential to deliver inflation-beating returns over time that can keep up with rising education costs. Prefer funds that invest in a mix of large-cap and mid-cap stocks to get the right balance of risk and return. You can also consider hybrid funds that invest in equity and debt. Use a fund comparison tool to analyze different funds before choosing suitable ones for your SIP.
Increase your SIP amount periodically.
As your child grows, education expenses also increase every year. You must increase your SIP amount by a fixed percentage each year to keep up. Assuming education inflation of 10%, if you start with ₹5,000 a month when your child is three years old, you need to increase it by at least 10% each year. When your child is ready for college at 18, your monthly SIP amount will increase to ₹38,000. Use an education planning calculator to determine sustainable step-up percentages each year.
Rebalance investments over time.
As goals progress, rebalance your education fund between equity and debt mutual funds to reduce risk. You can move some from equity to debt funds each year while keeping some in equity for continued growth. For example, if you started with 80:20 equity: debt allocation for a toddler, you can make it 60:40 when your child is ten and 40:60 by the time they turn 18. Rebalancing helps achieve high returns early on and protects capital closer to need.
Invest in one-time lump sums when possible.
In addition to SIP, invest any lump sums you receive towards your child’s education, like bonuses, maturity proceeds, or inheritances. One-time investments boost your education fund and reduce the monthly SIP amounts needed to achieve your goals. If invested early, they have the potential for high long-term returns that can fund a large part of your child’s higher education needs.
An education planning calculator and the discipline to save regularly can help you fund your child’s aspirations for a bright future. Start early, choose the top mutual funds, step up SIPs periodically, and rebalance to ensure maximum returns with minimum risk. Additional one-time investments, whenever possible, further reduce financial burden by providing a strong education fund for your child when you need it the most.