From SIPs to safety nets: How parents should plan for soaring education costs

Kolkata-based Akash Samanta, 38, and Meghna Basu, 36, a homemaker, have not specifically planned for their five-year-old son Aihik’s education, but they invest monthly in a public provident fund (PPF) account. In addition, his grandfather has invested in a children’s mutual fund that can only be redeemed when Aihik turns 18.

“We are aware that education costs are going up, and it is important to stay prepared. We have started investing, and we plan to take a more structured approach as he gets older," said Samanta.

In contrast, Bengaluru-based Roshan Setty and Neena Biswal, both 43, parents of three-year-old Atharva, have adopted a layered approach from the outset. Equity mutual fund SIPs form the core of their education plan, supported by a traditional insurance policy and rental income earmarked for future expenses.

“I don’t know what my child will study or whether he will go abroad, but the aim is to ensure that money does not become a constraint when decisions have to be made," he said.

Both families have begun planning early for their children’s higher education, giving them a solid financial base. But early investing alone may not be sufficient.

In this story, we explore how parents can strengthen such efforts with more structured, goal-oriented planning to ensure education goals remain achievable and financially secure.

Education inflation bites

“Education costs in India are rising at 10–12% annually for engineering, medicine and management programs, far outpacing CPI inflation of 4–6%. This is driven by a demand-supply imbalance, with limited seats in high-quality public institutions amid growing aspirational demand," said Anubha Singh, senior higher education leader and strategist.

Estimating future costs is critical.

“To estimate accurately, find the current cost of the target course (e.g., ₹20 lakh for an engineering degree today) and apply a ~10–12% inflation rate for the years until college. For a child aged 5, that ₹20 lakh degree will cost approximately ₹70 lakh when they turn 18," said Anooj Mehta, vice-president, partner success at 1 Finance, a financial planning platform.

Right product mix

Experts say education planning works best when each product is used for a specific role.

“Mutual funds should serve as the primary ‘growth engine’ of the portfolio. Their ability to beat inflation over 10–15 years is unmatched by traditional instruments," said Mehta. Diversified equity funds, he added, offer the growth required to keep pace with rapidly rising costs.

Insurance-linked child plans remain popular, largely because of their guaranteed maturity benefits. Setty opted for a traditional insurance plan for this reason. But guarantees often come at the cost of lower returns.

“The golden rule of financial planning applies here: Insurance protects the goal; investments achieve it. Buy a pure term plan to ensure the funding continues if you aren't around, but keep your investments separate in mutual funds," said Mehta.

Guaranteed, but limited

For parents of a girl child, the Sukanya Samriddhi Scheme (SSY) can be a useful component. It offers assured returns and is fully tax-free under the EEE structure, making it one of India’s most tax-efficient savings instruments.

“While it has withdrawal conditions and limited liquidity, it works well as a core, long-term savings component for a girl child’s education, complemented by more liquid instruments to meet short-term expenses," said Rahul Jain, president and head, Nuvama Wealth Management.

Liquid instruments such as fixed deposits, liquid mutual funds or even savings accounts play a different role—covering fees due in the next one to two years.

“A balanced blend helps you grow more in the beginning and keeps you safer as you get closer to your objective," said Chakrivardhan Kuppala, co-founder and executive director, Prime Wealth Finserv, a financial planning firm.

The Settys also make a small contribution to the National Pension System (NPS), planning to draw on it for their child’s higher education. In 2024, the Pension Fund Regulatory and Development Authority introduced NPS Vatsalya, allowing parents to open an NPS account for a minor to fund goals such as education.

NPS Vatsalya dilemma

Market-linked, low-cost products like NPS can deliver higher long-term returns, says Vishwajeet Goel, head, Pensionbazaar.com, who believes NPS Vatsalya could outperform fixed-return schemes like SSY, which currently offers 8.2%.

However, structural limitations remain. Earlier rules required 80% of the corpus to be annuitized at age 18 if the corpus exceeded ₹2.5 lakh. While exit norms have eased—allowing up to 80% lump-sum withdrawal between ages 18 and 21—20% still must go into an annuity unless the corpus is small (up to around ₹8 lakh).

“This is clearly bett`er than before, but the basic problem remains. For education, you usually need a large amount up front, in a specific year," said Kuppala. “Even if 80% comes as a lump sum, 20% is still locked in an annuity, which is not very useful when you have to pay ₹10–20 lakh in one shot."

In short, Vatsalya remains a pension product first—and an education solution largely on paper.

Reducing market risk

Asset allocation should evolve as the goal approaches. With 15 years to go, experts recommend allocating 70–80% to equity mutual funds, typically through SIPs in large-cap or flexi-cap funds. The balance can sit in PPF or SSY.

“The idea behind not going all the way to 100% equity is that even over 15 years, markets can go through deep corrections and long flat periods," said Kuppala.

In 10 years, change to around 60% equity and 40% debt. You can start putting some money into target-maturity funds that will mature in the same year as your objective.

Five years after that, it's time to get more aggressive with your debt. Bring your equity down to 30–40% and move the rest into safer investments like debt MFs, or even bank FDs.

“Importantly, we don’t stay invested in equity till the last moment. Around two years before the money is needed, we move funds out of equity into safer assets so fees can be paid regardless of market conditions. The idea is to protect the goal, not speculate," said B. Srinivasan, director and founder, Shree Sidvin Investment Advisors.

“The whole corpus, but especially the first year's tuition and living expenses, should be in cash, short-term FDs, or ultra-short debt funds," said Kuppala.

This slow change keeps you safe from changes in the market. If you require ₹20 lakh in 6 months and your investments drop 10% because of a market correction, that's a loss of ₹2 lakh. You can avoid that kind of stress by taking steps to lower your risk.

With higher education costs rising faster than inflation, parents need to start early, estimate realistic future expenses, and spread investments across growth and safety-oriented products. Equity-led portfolios, gradual risk reduction, and sufficient liquidity close to admission years can help ensure education choices aren’t constrained by market volatility or cash shortfalls.