Planning for your child’s education is one of parents' most important financial goals. With rising inflation and education costs, saving...
What is an SIP?
SIP, or Systematic Investment Plan, periodically invests small sums of money to build a corpus over the long term. It works on the principle of rupee cost averaging, where you buy more units when the price is low and fewer units when the price is high, thus averaging out the purchase price.
The most significant benefit of SIP is that it teaches the discipline to save and invest regularly. With as little as Rs. 500-1000 invested every month from an early age, SIP investing can build a substantial education corpus when your child is ready for college or university.
How Do SIP Calculators Work?
SIP calculators are online tools that help one estimate the future value of their SIP investments. They take into account the factors like:
Monthly SIP investment amount
Expected rate of return
Investment tenure
Inflation rate
Based on these inputs, the SIP calculator can help one project the future value of investments. This clarifies how much investment is required each month to reach the goal of funding one’s child's education.
For instance, if you want to accumulate Rs. 10 lakhs for your child's education in 15 years and expect 12% annual returns on your SIP investment, the calculator will tell you that you need to invest around Rs. 3500 every month to reach that target amount.
Key Benefits of Using an SIP Calculator
Here are some significant benefits of using a SIP calculator for education planning:
1. Estimating Required Monthly Investment
The most significant advantage of an SIP calculator is that it tells you exactly how much you need to invest each month to accumulate the required education corpus. A SIP calculator estimates the monthly SIP investment needed well in advance based on factors like your child's current age, expected future costs, and investment returns.
2. Test Different Scenarios
SIP calculators allow you to test different scenarios using varying time frames, rates of returns and monthly SIPs. For instance, you can see how increasing your monthly SIP by Rs. 1000 can impact your overall returns and change the education corpus. Testing different scenarios can help create a more realistic and optimal education plan.
3. Track Progress Over Time
Online SIP calculators are dynamic tools that allow you to adjust inputs as time passes. As your income and investments grow, you can change the expected returns, monthly SIPs and goal amounts to see updated projections. This can help you track if you are on course to reach your target education corpus.
4. Start Early with Small SIPs
One of the biggest takeaways from an SIP education calculator is to start as early as possible.
The longer your investment horizon, the more time your money gets to grow. The calculator shows how small monthly SIPs can grow significantly over 15-20 years from an early age. This drives home the power of compounding and starting SIPs early when planning for long-term goals like child education.
How Much Should you Invest via SIPs for Children's Education?
As a rule of thumb, it is advisable to start investing right from the birth of your child till they turn 18-21 years old and enter college or university.
Parents usually invest 10-15% of their monthly income in SIPs to accumulate the required education corpus. Salaried individuals should also use their PPF account and employee provident fund, which can be later withdrawn for their child's education.
- For primary and secondary school: If one plans to send their child to a reputed school, they should set aside Rs. 3000-5000 monthly in SIPs from birth.
- Graduation costs: To fund an engineering or medical college degree, one should invest Rs. 5000-10000 monthly in SIPs from their child's early years.
- Higher studies abroad: For foreign universities, one can start with Rs. 15000-20000 monthly SIPs and increase the amount as the income grows
The key is to start small but start early. Have a long investment horizon and inflation factor, increase SIPs as earnings rise, and utilise the power of compounding.
How to Choose the Best SIP Calculator?
With so many SIP calculators available online, how do you pick the right one? Here are some tips you can consider:
1. Comprehensive Projections
Look for a calculator with comprehensive projections covering your monthly/yearly savings, total investment, expected corpus, etc. Avoid basic calculators that only show the future value.
2. Customisable Parameters
Choose a tool that allows you to customise parameters like retirement age, income growth rate, inflation rate, etc., according to your needs. This will give you more personalised projections.
3. Tax Savings Calculations
Opt for calculators that can factor in tax savings from investments like PPF, ELSS Mutual Funds, etc. This provides a more realistic estimate.
4. Latest Interest Rates
Look for updated calculators with the latest SIP interest rates and returns top mutual funds offer. This ensures the accuracy of your projections.
5. User-Friendly Interface
Considering these factors, one can choose a reliable SIP calculator and create a prudent education plan to fund their child's future.
Summing Up
Planning for rising education costs requires smart planning done well in advance. SIP calculators are invaluable tools for creating feasible and long-term education plans for one’s kids. They help in prudent education planning by estimating the target corpus and required monthly SIP amounts, tracking progress, and testing different scenarios.The key is to start SIPs early, stay invested for a long tenure, increase the amounts periodically and take advantage of the the power of compounding. This can help parents build sufficient education funds to secure their child's future without financial stress.
