How much should I invest in a SIP for my child’s education?

I am 36 years old and do not have a Systematic Investment Plan (SIP) so far due to my home loan and other financial liabilities. Now that I intend to start a SIP, how much should I invest every month to secure the future of my family, including my child?

—Name withheld on request

As a first step you need to establish how much you need for your financial goals. Since you have not mentioned your child’s age so we assume that your child is five years old and will start college in about 13 years. Let us assume you need about ₹20 lakh for her college education (at today’s prices). Now factor in inflation to know the future cost. The cost of higher education is rising by around 10% every year, and 13 years from now you will need around ₹70 lakh.

Since the goal is very long-term, equity mutual funds would be the best investment vehicle to take you there. As you haven’t started saving yet for this goal, start Systematic Investment Plans (SIPs) in a couple of flexicap equity funds right away. Despite your home loan EMI, it would be advisable to start making some investments as the cost of these goals would keep escalating every year due to inflation. A few suggested funds are: Parag Parikh Flexicap Fund, HDFC Flexicap Fund and PGIM India Flexicap Fund.

You need to invest ₹18,000 per month in these funds. Assuming 12% returns per year, you would have a corpus of ₹70 lakh in 13 years. If the SIP amount is too high, start small at ₹12,000 a month and keep increasing the investment by 10% every year.

Please note that the assumed requirement of ₹20 lakh is for domestic education. If you are planning to send your child abroad for higher education, the cost will be significantly higher at ₹50 lakh (at current costs).

The investment required for this will go up in the same proportion.

Raj Khosla is founder and managing director of MyMoneyMantra.com