Parents know for sure that setting a solid foundation for their kids future is among the most important obligations. As much as we would like them to be provided with the best we can offer in terms of opportunities for education or anything else they may chase in their lives, it all boils down to having adequate financial security. While the general inflation is around 6 to 7%, educational inflation is about 11% which results in steep increase of tuition fees and other fees.
For this very reason, the Implementation plan to help a child prepare financially for the future is known as a Systematic Investment plan.
In this article, we will look at what SIP means, why it is one of the most effective ways to build investment for your child’s future and how SIP can help to provide funds for your child’s education. But we will also discuss more about SIPs, features of the most popular investment plans for children’s education, and tips to make a worthy investment here.
What is a SIP?
A SIP means Systematic Investment Plan – it is a process of investing in mutual fund where an investor purchases a fixed amount of units at a fixed interval of time such as monthly, quarterly and so on. This investment method gives you a chance to build your wealth in the long run relying on the market and compounding effects.
But by doing so in the form of SIPs, the investments are made in instalments rather than at a given point in time to minimize market impact. Using SIPs relieves you from the burden of the market timing, for with SIPs you rupee cost average is smoothed out over time adding to the benefit of investment.
Why should you choose SIP for your child’s education?
Educational planning deals with a long-term objective and may take time and a good deal of money to accomplish. With tuition fee going up, an SIP is a perfect tool to ensure you do not struggle financially. Here are several compelling reasons why SIPs are one of the best choices for securing your child’s future:
- Rising Education Costs
Education is getting expensive; the education inflation in our country is 11%. Whether or not it is school fees, undergraduate studies or higher education in a foreign country, the costs should not be underestimated. Saving in a SIP means you begin your investment process early so that your investment grows to match with the inflation.
- Power of Compounding
SIPs make use of compounding to the hilt. It means the returns your investments make can make further returns along the way, thus compounding your wealth over time. for instance, if you start a SIP when your child is born; it lets you have around 18 years of compounding which gives you a good corpus for your child’s higher studies.
- Flexibility in Investment
It is also portable where the individual can contribute little amount of money as he or she can afford and increase the amount contributed at a later time. There are features like SIP Top up which you can use to your advantage to build a solid corpus that is suffice to meet your child’s education.
- Effects Of Market Volatility and Rupee Cost Averaging
Another challenge that investors always consider is the unpredictability in the market. This risk is solved with the help of SIPs using the technique of rupee cost average. When the markets are down, the buyer increases the units to buy; on the other hand, the buyer reduces on the units to buy when market prices are high. This adjusts over time, which means that your average cost per investment is adjusted.
- Disciplined Savings Approach
SIPs inculcate certain financial discipline because they make you invest continually. This sort of pattern of saving keeps you on track to keep putting resources together for your child’s future while avoiding the urge to spend the amount accrued.
Best SIP Schemes for Your Child’s Education
| Fund Name | NAV (₹) | Fund Size (₹ Cr) | Expense Ratio (%) | 3-Year Return (%) | 5-Year Return (%) | 10-Year Return (%) |
| ICICI Prudential Child Care Fund | 309.99 | 1393.77 | 2.19 | 23.78 | 21.14 | 14.82 |
| Aditya Birla Sun Life Flexi Cap Fund | 1752.21 | 23905.34 | 1.65 | 24.14 | 22.42 | 16.56 |
| SBI Magnum Children’s Benefit Fund Investment | 40.4849 | 2855.58 | 1.90 | 29.50 | NA | NA |
| Aditya Birla Sun Life Bal Bhavishya Yojna | 19.54 | 1151.68 | 2.10 | 19.33 | 16.41 | NA |
| Axis Children’s Fund – Compulsory Lock-in – Regular Plan | 25.3456 | 934.89 | 2.28 | 13.87 | 13.75 | NA |
| Tata Young Citizen Fund | 25.3456 | 934.89 | 2.28 | 13.87 | 13.75 | NA |
Benefits of Investing in SIP for your child’s future
- Tax Benefits
Investing in ELSS mutual funds through SIP would give you tax break advantage under Section 80C of the Income Tax Act. It can help you lower your tax outgo and also create a corpus for the child’s education in future
- Long-Term Wealth Creation
In the long run SIPs can yield better results than SDs also have a higher return capacity than many other savings instruments like Fixed Deposits account savings etc. Through equity based systematic investment plans you are able to leverage on stock markets wealth generation capabilities which are usually more lucrative in the long run
- No Need to Time the Market
Some of the biggest mistakes are always made by investors include market timing. SIPs do not allow this problem because you are always investing over some time. Whether the market is rising or falling your investments go on, averaging the cost of the mutual fund units
- Liquidity and Accessibility
SIP investments come with the flexibility of cash availability that if there is an emergency then you can also withdraw your money, although based on the condition of chosen format of fund. They are unlike other long-term investment options since you can have free access to your money when you need it, though the term of liquidity and accessibility vary from fund to fund
Tips for Selecting the Right SIP for Your Child’s Education
Several things should be considered before selecting the best SIP for your children, which includes the investor’s risk tolerance, the investment time horizon and your objectives.
- Investment Horizon
SIP can be long-term or short-term and it is critical that your child’s education must align to the long-term SIP you choose. SIPs are comparatively higher in case of equity based SIPs, in comparatively more longer around 5 years or more; while debt or hybrid funds is ideal if your goal is lesser, around 3-4 years.
- Risk Appetite
Equity based SIPs on an average provide higher return but entail a lot of risks. If you do not enjoy taking risks, you could invest in debt mutual funds – while less risky, they also yield less returns. A middle path could be possibly investing in the hybrid mutual funds, which is essentially a mixture of equity and debt mutual funds
- Fund Performance
When deciding on a SIP, one must gain some insight on performance of mutual funds which are present in the market. When possible, go for those mutual funds with historically good returns. It is however unreasonable to select a fund with fairly elevated short-term results, as this often precipitates high volatility.
- Expense Ratio
The expense ratio is the mutual fund management fees you pay to the mutual fund companies or firms for investment. Lower expense ratio means you need not cough up more to the mutual fund company in the name of management fees. It is worth to remember that in the long run, a higher expense ratio may effectively reduce your earning.
- Fund Manager’s Expertise
The performance of a mutual fund tends to depend on a number of factors of which the skill of the fund manager is considered critical. Invest in a mutual fund managed by skilled personnel with proven records of reasonable investment decisions.
Conclusion
An SIP investment is one of the most intelligent and efficient approaches to investing for your child’s education and future. Thanks to flexibility, long term investment for wealth creation, and accumulation, SIP is the best way to build a rock-solid financial portfolio for your child’s dreams. SIP means that as education costs go up one is assured of the money when the need arises to pay for tuition.
The beauty of SIPs is that they are disciplined, risk-mitigated ways to investing in mutual funds so parents who wish to educate their child without having to worry if the markets are conducive or not. Sites like Fincover, which act as mutual fund aggregator and SIP aggregator online can help you view hundreds of thousands of funds in our platform with few clicks. And we also do have financial experts who can guide you to pick the perfect plan that is suited to your dreams. Do fullfill your dream to present the best gift to your kid, by opting for an SIP rightaway.
