Planning for your child's education can be daunting, with increasing costs every year and growing competition in all fields. Whether it is for an engineering degree, medical studies, design school, or an overseas programme, the expenses run into several lakhs-or even crores. The good news is that an early SIP can help you grow the required corpus steadily without any financial strain. A well-planned SIP not only spreads out your investment but also harnesses the power of compounding in your favour. The sooner you start, the less you need to invest every month, and the longer time your money has to grow.
Estimate the future cost of education
It always helps if, before starting a SIP, you calculate how much your child's education might cost by the time they actually need the funds. Fees tend to increase by approximately six to ten percent annually, depending on the course and location. Once you have an approximate idea of what it would cost, work your way backward to reach the monthly amount that you should invest through SIPs. This lends some structure to your plan and prevents you from underfunding the goal.
Choose the Right Type of Mutual Fund
In the case of long-term goals, such as higher education, equity mutual funds work best because they have growth potential over ten years or more. If your child is still very young, you can opt for diversified equity funds or flexi-cap funds to ride on market fluctuations. As the goal approaches, shift a part of the investment gradually into hybrid or debt funds to protect the corpus from volatility. This simple transition keeps your fund stable as the year of withdrawal approaches.
Align SIP amounts with your income
Your SIP should be affordable on top of expenses like school fees, household expenses, and existing EMIs. If this estimated SIP amount sounds too big, begin with a smaller amount and increase it every year as your income grows. Several parents invest through step-up SIPs which automatically increase the contribution amount every year. Even a ten percent annual increment can greatly enhance the final corpus while keeping the monthly outflow manageable.
Use dedicated investments, rather than commingling goals
There's a very strong temptation to use one SIP for multiple goals, but it becomes tough to track progress and remain disciplined on the same. A separate SIP for your child's education serves as a better way to track growth and helps you not use that money for other needs. Clarity helps you stay consistent through ups and downs in the market.
Understand the tax benefits and implications
The equity SIP investments are not entitled to any tax deductions under Section 80C unless one chooses the ELSS funds. But, for the ELSS fund, there is a mandatory three-year lock-in. If your long-term capital gain from equity funds surpasses Rs. 1 lakh, a 10 percent tax is levied on the amount, while gains in debt funds have their own tax treatment based on holding period. Knowing these details helps you plan withdrawals smartly when the education expenses start
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