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The cost of children’s education is increasing every year, but it can be easily managed with SIP started early. Small monthly installments create a large corpus which can handle the entire expense of education from school to college.
New Delhi. The cost of children’s education is no longer limited to just copies and books. From school fees to college degree, every step is a big burden on the pocket. But the good thing is that little by little investment every month can easily eliminate your tension. A smart SIP can help you manage your child’s entire education expenses from nursery to engineering-medical without any hassle.
Estimate your expenses first
Before starting SIP, it is important to estimate how much the child’s education will cost in the future. Fees for most courses increase by about 6-10% every year. Once you have an idea, you can decide the monthly amount of SIP accordingly so that there is no shortage of funds later.
Which fund will be right?
Equity mutual funds are considered better for long-term goals like higher education as they have higher growth potential over a period of 10 years or more. If the child is small then you can choose diversified or flexi-cap fund. When the target is near, shift some money to hybrid or debt fund, so that your fund remains safe from market fluctuations.
SIP should be as per your pocket
Keeping in mind school fees, household expenses and EMIs, keep your SIP as much as your income and expenses allow. If the amount seems high then start with a small SIP and keep increasing it by 10% every year. With Step-up SIP, parents can build a larger corpus without any stress.
Have separate SIP for each goal
It is difficult to accomplish multiple goals with a single SIP and discipline also breaks down. Therefore, keep a separate SIP for the child’s education, so that the track remains easy and there is no risk of the money being spent elsewhere when needed.
It is important to know the mathematics of tax
80C tax benefit is not available on equity SIP. This is available only if you choose ELSS, which has a lock-in of 3 years. If there is long-term gain of more than Rs 1 lakh annually from equity funds, then 10% tax will have to be paid. Debt funds are taxed according to their holding period. By understanding these rules, you will be able to withdraw funds at the right time and manage your study expenses easily.
(Disclaimer: Mutual fund investment is subject to market risk. If you want to invest in it, then first consult a certified investment advisor. StuffUnknownwill not be responsible for any profit or loss of yours.)
