As you get closer to needing the funds, move the corpus to a debt fund to safeguard the capital. The monthly SIPs should be such that your equity investment grows to achieve the target amount, net of taxes. Debt is for safety
NEW DELHI: When it comes to planning children’s education fund, it is essential to work backwards and start early, while keeping inflation in mind. Investing in inflation-beating instruments prepares you well for the future.
Prateek Mehta, Co-Founder and CBO, Scripbox said, “For a private college education in India, the fee today can be anywhere between ₹8-15 lakh for the entire graduation course and a similar amount reaching up to ₹25 lakh or so for post-graduation. After accounting for a 12% escalation in annual education costs, the expense comes to around ₹14 lakh on an average and upwards. This means that you need a sum upwards of ₹4.5 lakh each year for three years to fund higher education for your child."
"Similarly, for a foreign college education, tuition fees at Ivy League colleges in the USA are upwards of $50,000. With the cost of boarding, books, and other overheads, the total cost would be more than $70,000 today. In such a scenario, it is recommended that you expand your portfolio to include US equity funds. In addition to building a corpus for your child’s education, they can provide a natural hedge to the risks in currency fluctuation," he added.
Having an investment horizon of at least 10 years will require you to invest every month, which will then add gains over the coming years to help achieve the target amount. As you get closer to needing the funds, move the corpus to a debt fund for 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. Debt is for safety.
“You must also know that when you invest in equity mutual funds, the short run will be volatile. However, you have to be disciplined and stay invested for the entire duration to see considerable returns in equity," he said.
For instance, to accumulate a total of ₹30 lakh, an amount which is very easily used up in a post-graduation in India or an under graduation abroad - one needs to invest in the following ways, keeping the time horizon in mind.