SIP for saving for your child’s higher education

Why choose SIP for saving for your child’s higher education?

SIP stands for Systematic Investment Plan; It is an ideal way to invest in your child’s higher education because it allows you as a parent to stay invested for the long-term in a disciplined fashion and reap the benefits of compounding.  

A SIP helps you set aside a fixed amount (weekly, monthly or quarterly) based on your goals and make timely investments without feeling overwhelmed.      

Why should you save for your child’s education? 

Education is expensive more than ever before. The average cost of education has jumped more than 500% in the last 3 decades due to a myriad of reasons like inflation, greater demand, infusion of technology to education and improved infrastructure.  

According to the National Sample Survey Office (NSSO) report, the annual cost of education in 2014 increased 2.75 times while the per-capita income had only increased by 2.49 times. Showcasing the great disparity between cost in education cost as compared to growth in household income. 

Conducted in 2017-18, NSSO’s 75th round survey of “Household Social Consumption of Education in India” stated that a majority of Indian families find it exceedingly difficult to afford tertiary education due to the rising school fees and secondary costs like uniforms, transport and school supplies. 

This increase is reflected in annual fees across Indian educational institutions. An engineering degree, for example, can cost up to Rs. 4 lakhs per year at some universities. If this continues, in the next 15 years, the same degree can cost up to Rs. 15 lakhs per annum. 

The increasing cost of education is a huge financial burden on many parents; a medical degree from a private college in India can easily cost up to Rs. 1 crore. In fact, a majority of Indian parents have to send their children to study medicine abroad due to the inability to pay for private college fees in India.  

Another factor that affects education costs is the depreciating value of the Indian rupee against the dollar. The weakening of the rupee can increase the overall cost of education for parents whose children are studying and living abroad.   

Let’s consider how you can rise above this expanding cost of education.   

What should a parent do amidst rising costs? 

Careful and early financial planning strategies are the key to beating inflation.  There are two facts that all parents should consider- starting early and staying consistent.  

Early investing is the best way to prepare for future costs. It helps in developing the healthy habit of saving for their higher education when they are young. The sooner you start saving the better. The perfect time to start saving for your child’s education can and should start before she/he is even born.  

Consistency is the key! It is extremely important to be disciplined and consistent with the contributions to your child’s education fund. Whether you invest in Mutual Funds, ETFs or Equity, the best and only way to approach the giant cost of education is through diligent financial planning.  

sip-for-saving-for-higher-education
Source: Pexels

What is the best way to start saving?  

For long-term investments pertaining to higher education, systematic investment plans (SIP) in Mutual Funds are the ideal choice. A SIP is a recurring monthly investment in a Mutual Fund that is automatically debited from the listed bank account. 

If you start investing while your child is young, a 10 to 15-year time frame has the potential to help you generate significant returns. A SIP of Rs. 15,000 a month for 15 years can help you save up to Rs. 1 crore.  

A SIP gives you the freedom to increase the fixed amount as well. This technique is called the step-up SIP strategy. It can help you in the long run, as an investor because your income is likely to increase as you progress in your career or have a windfall.   

Are mutual funds safe? 

Mutual Funds are risky yet transparent products. This means that you can study and evaluate the performance of the fund before investing your money. Each Mutual Fund includes a factsheet and its financial performance is available to every potential investor.  

Every Mutual Fund comes with a factsheet that includes pointers like the fund manager’s name, fund’s objective, starting date, benchmark index, and corpus size.

This allows you as an investor to analyse its performance over the years and compare its progress with other mutual funds. While it does not guarantee 100% returns, it is a profitable investment choice for those who wish to invest in the long run.  

If you are someone who is planning to build a healthy college fund for your child then a SIP is the most effective way to save up and diversify your investments against inflation.  

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