With education costs in India rising by an estimated 11-12% annually, parents need to start planning early to build a sufficient corpus for their children’s higher education.
A combination of equity mutual funds and systematic investment plans (SIPs), including step-up SIPs, can help them work towards this goal.
Mrin Agarwal, Financial Educator and Director at Finsafe India, believes parents should allocate at least 75% of their investments to equities, particularly when the investment horizon is 10-15 years.
Parents can consider children’s mutual funds or lifecycle funds, depending on their investment preferences. A combination of equity and debt funds can also work, but dedicated child-oriented products may help investors maintain discipline through market fluctuations, particularly if they are managing investments without professional advice.
How to build a ₹50 lakh education corpus
For parents who have not saved enough, a step-up SIP could help bridge the gap. Agarwal explained that someone targeting a ₹50 lakh corpus over 10 years, assuming 12% returns, would need to invest approximately ₹40,000 every month. However, increasing the SIP amount by 10% annually could bring the initial monthly investment down to around ₹28,000.
“The step-up SIP is a good option, which is basically annually increasing your investments,” she said.
Why parents should be careful about traditional child plans
Agarwal cautioned against buying traditional child education insurance plans, as their net returns could be around 4-5%, which may not be sufficient to keep pace with rising education costs. She also advised parents against exiting mutual funds during market corrections or chasing investments offering unusually high returns.
She recommended reviewing investments once a year rather than reacting to short-term underperformance. Parents should also ensure they have adequate term insurance and nominations in place.
Most importantly, they should avoid dipping into their retirement savings to fund their child’s education, as this could affect their own financial security.
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Investing for your child’s future: Allocate at least 75% to equities, says Finsafe’s Mrin Agarwal
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