Ravi T Sharma

The Secrets to Fund Your Child Education through SIP

If you have ever wanted to Fund your child education through SIP, then you are reading right article. That’s because you are about to discover my easy 8 step method for funding your child education. And the good news is that this method works even if you are into any profession or having any qualifications, irrespective of how much money you are earning.

A continuous rise in education costs in India has been a worrying point for most parents. Relying solely on an education loan burdens the child financially, resulting in lesser room for the child’s individual savings in the initial stages of their career. The best way to tackle increase in the cost of higher education is through investments in mutual funds through systematic investment plans (SIPs).

Step 1 – Start investing early:

Parents who begin investing early through SIPs give their money more time to grow. Additionally, for the same corpus amount, the monthly outlay through SIPs is lower than for those who invest later.

Step 2 – Calculate the corpus required:

Parents need to calculate the corpus amount before investing, based on current possible career options. However, make sure that while calculating this amount, existing as well as the expected inflation rate is taken into account. Do not commit the mistake of calculating the education corpus based on just present education costs as this is likely to lead to an insufficient corpus.

Step 3 – Go for zero commission direct plans:

Direct plans enable investors to buy mutual funds directly from fund houses without the involvement of financial intermediaries and without incurring expenses associated with them. Their lower expense ratio, higher net asset values (NAVs) and greater returns make it a better option than regular plans.

Step 4 – Build portfolio according to risk appetite:

Parents need to select the right funds for their investments. Every investor has a different risk appetite which anchors their decision while building their portfolio. Ideally, one’s core portfolio should include a few top multicap funds as these funds can invest in shares of large, mid and small sized companies, and are thus able to align themselves as per changes in market conditions.

Step 5 – Increase the SIP amount whenever possible:

After deciding on the SIP amount, make sure to review it periodically and increase it whenever one has additional funds to do so, by using the step-up facility. Ideally, you should increase the SIP amount every year as one’s income goes up.

Step 6 – Track the funds’ performance periodically

Regularly compare one’s existing fund’s performance with the benchmark and other funds in its category to evaluate performance. If it is performing satisfactorily, hold on to it, otherwise one must consider switching to some other better performing fund to prevent any damage to your corpus creation process.

Step 7 – Separate them from other investments:

Another important aspect to keep in mind while managing a child’s higher education funding is to separate this goal and its investment from other investments. Make sure one doesn’t compromise on this goal to fulfil any other goal. Keep investing through SIPs regularly for the set horizon of 10-15 years (as per your child’s age) in order to build the desired amount of corpus.

Step 8 – Take Term Life Insurance:

Term life insurance provides an assured amount to your family in case of your untimely demise. This ensures that the financial needs of the family and child aren’t left uncovered. The insured amount helps in continuation of SIPs for building the child’s higher education corpus.

And there you have it – a simple 8 step methods for funding the child education. Now that you know how to fund your child education through SIP, there is one thing left for you to do:

Take Action

So get to it, and educate your child without borrowing an education loan.

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