A child’s education is one of the most important financial goals for any parent. With the rising cost of education in India and abroad, planning for this goal requires both discipline and clarity. Systematic Investment Plans (SIPs) in mutual funds offer a smart way to potentially grow your money over time through affordable and consistent investments. A monthly SIP calculator is a valuable tool that can make this process easier by helping you estimate the required investment and work towards your goal more strategically.
This article tells you more about the importance of early planning and how a monthly SIP calculator can help.
Understand the importance of early planning
The cost of education has been increasing steadily. Moreover, what might cost Rs. 10 lakh today could cost Rs. 25 lakh in 15 years due to inflation. This may seem overwhelming, but starting early and investing methodically can make your goal achievable.
A monthly SIP in a mutual fund scheme can be one way to do this. An SIP allows you to invest a fixed amount at regular intervals in a mutual fund scheme of your choice. There are several frequencies to choose from – daily, weekly, monthly, quarterly, etc. The monthly option is the most common as it can be aligned with income flow.
This allows you to spread your investment over time, making it manageable to save for large expenses like college fees. The earlier you start, the more you potentially can benefit from compounding, where your investment returns, when reinvested, potentially earn further returns. This can have a snowball effect over time.
However, planning in advance can be challenging, as you may not have a clear picture of the investment amount that could potentially get you to your goals. A monthly SIP calculator can make this process easy, helping you identify how much you may consider investing today.
How a monthly SIP calculator helps
A monthly SIP calculator takes away the guesswork in investment planning. By inputting the estimated cost of your child’s education, your expected rate of return, and the time left until the goal, the calculator tells you how much to invest each month.
For example:
If your goal is to build a corpus of Rs.25 lakh in 15 years and you expect a return of 12% annually from an equity mutual fund, the calculator will show that you need to invest around Rs. 5,000 monthly.
If you want a more conservative avenue, such as a hybrid mutual fund, and expect a return of 10% annually, the calculator will estimate that you would need to invest about Rs. 6,000 per month.
These insights make it easier for you to plan your SIP contributions based on your budget and financial goals.
However, it is essential to remember that the calculator’s estimates are based on your inputs and there is no assurance that those estimates will be achieved. Mutual fund returns are not guaranteed or fixed and depend upon market movements. Hence, your growth rate could be lower or higher than expected.
Impact of time
A calculator can also help you visualise the role of time in your wealth-building potential. For instance, instead of 15 years, if you start saving 10 years before the milestone, you will need to invest a little over Rs. 12,000 a month to potentially reach your goal (assuming a 12% return on investment). If you start five years before the goal, you will need to invest Rs. 30,000 a month.
Choose the right plan for SIP investments
Selecting the right mutual fund is also important. Equity-oriented funds are generally recommended for long-term goals like education because they have the potential to generate higher returns compared to debt funds. However, it’s important to match the fund’s risk level to your risk tolerance.
When choosing an SIP investment plan for your child’s education fund, ensure it aligns with your timeline:
- For a horizon of 7-10 years or more: Focus on equity funds for better long-term growth potential.
- For a horizon of 4-6 years: Hybrid funds that combine equity and debt may be a suitable option as they combine growth potential with relative stability.
- For short-term goals: Debt mutual funds offer lower return potential but come with lesser risk too.
A monthly SIP calculator can help you compare different scenarios, allowing you to tweak your investment amount or duration as needed.
Regular reviews for financial alignment
While SIPs and calculators make long-term investing simple, periodic reviews are necessary. Check your child’s education fund once a year to ensure it’s on track. If the returns are lower than expected, you may need to increase your SIP amount. A monthly SIP calculator can help you recalibrate your investments accordingly.
Additionally, review your fund choice as the goal nears. Switching to lower-risk investments as your goal nears can mitigate the impact of volatility on your accumulated capital.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.