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Mutual fund calculator: The rising education loans may exacerbated the financial state of parents who couldn't plan for the child studies. The high interest rates on education loans also pose a big challenge to such parents. So, it is very important to plan your investment goals and devise a financial strategy to fund higher education of your child. However, while investing for higher studies of one's children, the investor needs to keep inflation in mind.

Highlighting the importance of keeping inflation for an investor; Pramod Chandrayan, Co-Founder and CPO at FinMapp said, "At present, average annual growth of inflation is roughly 6 per cent. So, investing in products that can beat the rising heat of inflation is essential to increase your preparedness for future events."

Speaking on average inflation one should keep while planning for higher studies of children; Pankaj Mathpal, MD & CEO at Optima Money Managers said, "While planning for education of one's child, keeping inflation at normal average is not advisable because education inflation is much higher than normal average annual inflation growth rate. I suggest investors to assume an annual education inflation growth of around 10 per cent while planning for higher studies of children."

15 x 15x 15 rule of mutual funds

Pankaj Mathpal said that if parents start saving for studies of child immediately after the birth of the child, then they would be able to save for around 15 years. Reminding investors about 15 x 15 x 15 rule of mutual funds, Pankaj Mathpal said, "As per 15 x 15x 15 rule of mutual funds, an investor can expect to get 15 per cent return on one's monthly SIP, if the tenure of investment is 15 years."

So, assuming 10 per cent inflation, mutual fund calculator suggests that today's 20 lakh required for the higher studies would shoot up to around 85 lakh. So, investment goal of investors who starts investing for higher education of their child immediately after the child's birth would be 85 lakh.

Source: SBI mutual fund calculator
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Source: SBI mutual fund calculator

As per mutual fund SIP calculator, monthly investment required to get 85 lakh maturity amount after investing for 15 years assuming 15 per cent annual return would be around 12,500.

Source: SBI mutual fund calculator
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Source: SBI mutual fund calculator

However, Pankaj Mathpal of Optima Money said that one should use annual step-up instead of starting with higher monthly SIP amount. He said that annual step-up helps an investor keep monthly SIP at lowest possible level at the time of beginning of investment. He said that one should use normal 10 per cent annual step-up and bring down one's monthly SIP amount to lower levels.

So, assuming 10 per cent annual step-up and 15 per cent annual return after 15 years, an investor would require to start an SIP with 8,500 monthly.

Source: piggy SIP calculator
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Source: piggy SIP calculator

On equity mutual funds that may give 15 per cent return to an investor, Pramod Chandrayan of FinMapp said, "Reliance Large Cap, ICICI Prudential Bluechip Equity Fund, Tata Equity P/E Fund, HDFC Small Cap Fund and DSP Tax Saver Fund are some of the top equity funds that an investor can think of investing while planning for higher studies of one's child."

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