With the rising education costs in India, it is now imperative for the parents to start saving for their child’s future, especially their education, as soon as possible. Read this post to know how SIPs can be valuable in this endeavour.
While parenthood is unique and rewarding in itself, it does come with a lot of responsibilities. With the current inflation, raising a child can be very challenging for most parents. As a result, increasing number of parents now start planning their child’s future, especially their education, as early as possible.
While there are now several ways to save and invest for their education expenses, SIPs are one of the most efficient. Continue reading to know how you can use SIPs to plan your child’s future.
- Be an Early Bird
You can unleash the true potential of SIP only when you start investing as early in life as possible. SIPs in mutual funds also make financial sense as it allows you to start investing with a minimal amount.
Most SIPs in India can be started with Rs. 1,000, making it easier for the parents to start investing at an earlier age. If you invest consistently through SIPs, over time, compounding can help you generate excellent returns.
- Select the Right Fund
If your investment objective is to save money for your child’s education and you are starting early, you’d probably have at least 10-15 years before you’d need the money.
In such cases, it is better to invest in equity funds which are known for their long-term potential. While other types of funds can also be added for diversification, equity funds should be given preference.
- Go for Debt Funds for Shorter Durations
If you are already at a stage where you’d need the money in about 3-5 years, SIPs can still be very useful. Rather than equity funds, you can look for debt funds and fixed income schemes which offer lower returns but are safer.
But even when investing in such funds, make sure that you select the mutual fund carefully after going through the details of the fund and reputation of the AMC.
- Know How Much You’ll Need
The education costs in India are expected to rise consistently. As a result, it is very important that you first know how much money you’ll need in future for funds your child’s education.
It is only when you know how much you’ll need that you can create an investment plan to achieve the target. There are now online SIP calculators that you can use for calculating the money you should invest every month to achieve your goal.
- Increase the SIP Amount as your Income Grows
With time, your income would increase too. Use such opportunities to increase the SIP amount as this will allow you to achieve your child education plan goal sooner.
While it is recommended that you should increase the SIP amount by at least 10% every year, you can increase it as and when it is feasible for you.
While mutual fund investments are probably not as safe as something like fixed deposits, they do make up very well for the risks with far better returns potential. Invest carefully and do not avoid taking professional help if needed. Most AMCs now also offer consultation services.