Big Questions

Where to invest for your child's education?

Here we suggest a plan of action to fund the education of your child

Where to invest for your child's education?

It is every parent's desire to give their children the good quality education they deserve, but such education is pricey.

So, here's a suggested plan of action if you're looking to save up for your kid's education.

For the short-term
If you need the money over the next two-three years for the child's education, don't think about equity, but rather look for a fixed-income option. A recurring deposit with the bank or an SIP in a high-quality short duration fund will also work.

For the long-term
However, if this investment plan is meant for higher education, equity would be the right option since your horizon is about 15 years. For such a lengthy time period, it is best to go for a pure equity fund such as a flexi-cap fund or even a tax-saver fund (ELSS) (if you wish to claim the tax benefit from Section 80C of the Income Tax Act).

Suppose you're new to investing or haven't invested in equities before, you can start with an aggressive hybrid fund. These funds have a portion of debt allocation in them which reduces the volatility of the fund. Once you get comfortable with the ups and downs of equity, then you can move on to a flexi-cap or a tax-saving fund.

But increase your SIP amount regularly
It is always a good practice to start planning for your child's education early. Starting early can be beneficial as you can take advantage of the power of compounding. More importantly, while Rs 2,000 is a good amount to start, ensure that you keep increasing this amount a little bit every year with the rise in your income. Additionally, you can also spare and invest some amount on special occasions like the child's birthday or whenever possible.

By investing Rs 2,000 every month for the next 15 years, with returns assumed at 12 per cent, you would build a corpus of Rs 10.09 lakh. But if you increased your SIP amount by 10 per cent every year (i.e., Rs 2,000 for the first year, Rs 2,200 the next and so on), you would end up with Rs 17.36 lakh. That's a significant increase.

Wondering which flexi-cap, tax saving or aggressive hybrid would be the best? Visit Analysts' Choice and check out the list of funds hand-picked by our analysts.

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