Build Rs 50 lakh wealth for your child's education by starting to save Rs 100 daily

If you've just welcomed a child into your family, you have around 18 years to plan for their higher education. For that, you need a sizable amount in a few years, a figure that might seem overwhelming today because education inflation has shown to grow at a rapid pace.

Fortunately, though, you don't need to start big to achieve big.

All you need to do is start saving as little as Rs 100 daily every month. By the end of the month, you can invest the savings of Rs 3,000 (Rs 100*30) in a diversified equity fund ( flexi-cap funds , for example) through monthly SIPs (systematic investment plans) .

The magic of a monthly SIP

Let's look at a real-world example: if you had invested Rs 3,000 every month in a flexi-cap mutual fund for 18 years, which delivered an average SIP return of 14.5 per cent, your investment would have grown to Rs 28 lakh by now.

The Rs 28 lakh might have been sufficient to finance your child's higher education today. But since higher education fees are getting exorbitant by the day due to inflation, you may need to accumulate more than this amount.

This is where step-up SIPs can make a significant difference.

The power of step-up SIPs

A step-up SIP allows you to increase your monthly investment by a fixed percentage each year.

Since your income will likely grow each year, you can choose to increase your SIP amount by 10 per cent each year in a flexi-cap fund. For example, you can start with a Rs 3,000 SIP in the first year, increase the amount to Rs 3,300 the next year, Rs 3,630 the following year and so on.

With this approach and assuming flexi-cap funds perform similarly to how they have over the past 18 years, your total investment would rise to Rs 16.4 lakh, and the final corpus could top the Rs 50 lakh mark in 18 years. That's almost double the amount you would accumulate with a fixed monthly SIP of Rs 3,000.

Why equity funds are your best bet

While there are other investment options such as PPF (Public Provident Fund), SSY (Sukanya Samriddhi Yojana), NPS Vatsalya and bank fixed deposits (FDs), equity funds triumph over all of them owing to inflation-beating returns, broader diversification and flexibility of withdrawals.

As seen from the table below, investing in an equity fund (flexi-cap fund) would have resulted in a much larger corpus than other investment avenues over 18 years. Though NPS Vatsalya also delivers decent returns, its rigid withdrawal rules and lock-in feature until the child turns 60 make it unsuitable for funding their education and other major expenses.

Your action plan for accumulating 50 lakh in the next 18 years

Starting early gives you the unbeatable advantage of time, allowing your small, regular investments to snowball into a significant amount. Whether it's for education or other life goals, planning now means you won't have to suffer later by having to invest larger amounts.

• Start today : Begin with Rs 3,000 a month.
  
• Step up annually : Increase your SIP by 10 per cent every year to keep pace with inflation.
  
• Stay disciplined : Invest regularly and don't panic during market fluctuations.
  
• Don't be scared of equity : While equity funds can be volatile over the short term, the risk factor eases away in the long run, especially after 7-10 years.

To sum up, don't get overwhelmed by how expensive education and other expenses will be in a couple of decades' time or so. All you need to do is to keep your head down, start small, but crucially, stay consistent and disciplined in the long run. This will help you build a large enough corpus to meet your child-related goals.

If you are looking for the best equity funds to invest for your child's higher education, subscribe to Value Research Fund Advisor . Here, you will get access to in-depth research, tailored recommendations and tools to build a well-diversified portfolio that aligns with your goals. Whether it's flexi-cap funds or any other investment option, our insights empower you to make informed choices.

Take control of your investments today with Value Research Fund Advisor .

Also read: How to manage the unpredictable costs of your child's education