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SIP for child’s education and future planning in India

Education has become very expensive in India.With educational inflation standing at approximately 11%, the burden of financing a child’s education is set to increase even further in the years to come. A National Sample Survey Office (NSSO) report spanning from 2008 to 2014 highlights the alarming reality that the annual cost of education has surged by 2.75 times in comparison to 2008, while per-capita income has only increased by 2.49 times. This discrepancy underscores the growing disparity between income growth and the escalating expenses of education. 

Increasing tuition fees, combined with the challenges of managing daily expenses, often discourage highly qualified and talented individuals from pursuing higher education. The escalating tuition costs are not unique to India; this trend is witnessed worldwide, and the growth in tuition rates is outpacing the increase in per capita income. 

From an exchange rate perspective, individuals holding rupees face an added disadvantage in terms of financing overseas education due to the nation’s current account balance, relative interest rates, and inflation, which contribute to a weakening of the rupee. Unfortunately, this trend is expected to continue, further inflating educational expenses. 

How SIP helps you build the corpus you need 

Systematic Investment Plans (SIPs) offer a plethora of advantages for building a robust corpus to secure your child’s education. These advantages include: 

  1. Rupee Cost Averaging: SIPs enable you to navigate market fluctuations. With a fixed investment amount, you consistently invest on predefined dates, regardless of market conditions. This means that during a bearish market, you acquire more mutual fund units due to lower prices, while in a bullish market, you purchase fewer units. Over time, rupee cost averaging results in a lower average investment cost, mitigating the risk associated with market volatility. 
  1. Compounding Benefits: SIPs facilitate the reinvestment of returns, generating compounding benefits over the long term. Remaining invested for an extended period allows you to enjoy the full scope of compounding, accelerating the achievement of your financial goals. 
  1. Convenience: SIPs require minimal investment, making it a financially manageable option. They can be discontinued without hassle or charges, offering a hassle-free method to embark on your investment journey early. Beginning early provides a substantial advantage in building a significant corpus. 
  1. Inculcating Positive Habits: SIPs foster the habit of regular investment and savings. Most investors tend to continue SIPs as long as auto-debit mandates are in place, ensuring consistency in building a disciplined approach to meet major financial goals, such as funding a child’s education. 

How Do SIPs Work For Child’s Higher Education Planning 

Systematic investment plans (SIP) in peer to peer investing would be the best option for long-term investing in higher education. An SIP is a monthly investment that is deducted automatically from your bank account. SIPs allow investors to acquire exposure to equity markets while limiting risk by investing on a monthly basis.   

One of the advantages of investing in peer to peer investing is compounding, which is the process by which your interest is reinvested to earn greater gains. If you begin investing when your child is small, a time period of 10 to 15 years has the potential to help you earn big profits.  

As your monthly payment increases, so does this amount. That is absolutely achievable because your income–whether salary or business–is likely to rise as you advance in your profession. 

Some great investment options for Child education 

  1. Monexo Grow SIPs 

It is an excellent choice if you want to begin saving for your child’s education with a limited budget. Individuals can begin investing with as little as Rs.5,000 per month in risk-assessed, personal loans from creditworthy salaried borrowers, allowing them to take their initial steps into the world of peer-to-peer lending. You can earn up to a 13% annual return on your investment.   

Monexo SIP calculator can help you decide how much you should invest for your desired corpus.  

  1. ICICI Pru Child Care Fund-Gift Plan 

It is an open-ended mid-cap fund having Rs. 994.71 crore in assets under management (AUM). It has an extremely high risk profile. SIP investments in this fund can be made with as little as Rs. 500 on a daily, weekly, and monthly basis. The fund’s current NAV is Rs. 249.37 as of September 28, 2023, and its 5-year CAGR is 11.98%. 

3.Tata Young Citizen Fund 

It is an open-ended balanced programme for children aged 3 months to 18 years. 

This fund can be invested in through a Systematic Investment Plan (SIP) with as little as Rs. 150 on a daily, weekly, and monthly basis. The fund’s current 5-year CAGR is 15.46%. 

In Conclusion 

Regardless of your choice of SIP for your child’s education, early initiation is key. In addition to the numerous advantages, a long-term perspective maximizes returns from peer to peer investing while mitigating economic volatility risks. Consider increasing the SIP amount annually to build a robust education fund. While SIPs offer returns that can beat inflation, it is advisable to have a financial cushion to ensure your child can pursue higher education without financial constraints. 

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