From school fees to study abroad, here is how you win by flipping EMIs with SIPs
“A Rs 5 lakh degree today could cost Rs 25–30 lakhs by the time your newborn turns 18!”
We all save for our children, but are we doing it right, and are we doing enough?
Nothing disappoints us more than having to compromise on the choices we make for them, isn’t it? Here’s a how-to guide on investing for children, answering top questions on your mind:
1. Why Should I Invest In My Child’s Name Specifically If I Already Have My Own Investments?
Investing in your child’s name is a strategic move that builds a psychological firewall around their future. While you technically could fund their needs from your personal investments, it is a flexible resource at the end of the day. When a holiday abroad looks tempting or a home renovation goes over budget, we tend to dip into our general savings. By creating dedicated investments in your child’s name, you transform those funds into a "sacred" bucket. This separation creates a sense of obligation that makes you think about their future from day one. It also provides a structured way to manage the cash gifts they receive for birthdays or milestones—sums that are often substantial but frequently "leak" into daily household expenses if not earmarked immediately.
Insight: Earmarking is a commitment device; it protects your child's future from your own current lifestyle choices.
To do : Create a separate bank and investment account for each child to give their savings a clear identity. Identify the total value of cash gifts your child has received in the last year and move that exact sum into a dedicated, child-specific investment today.
2. Is It Risky To Choose Equity Mutual Funds Over "Safe" Fds And PPF/Sukanya Samriddhi?
The greatest risk in child-related planning isn't market volatility; it is purchasing power erosion. In India, education inflation typically hovers between 10% and 12%, while traditional "safe" instruments deliver much less post-tax. If you rely solely on these, you are essentially guaranteeing a shortfall. Emotional sentiment often drives parents toward "safety" because we don't want to "lose" money meant for our children. However, a reality check reveals that by being conservative, you lose value against the rising cost of fees every year. Equity mutual funds, while volatile in the short term, are equipped to consistently beat double-digit education inflation over a long-term.
Insight: In long-term education planning, "playing it safe" with traditional savings is actually the riskiest move because it guarantees a loss of value against fee hikes.
To do: Allocate your child's long-term corpus to equity mutual funds to ensure your growth stays ahead of the 10-12% annual rise in college costs. Use online calculators to see the difference in maturity value between a 7% FD and a 12% equity fund over 18 years to see the "cost of safety."
3. How Should I Manage Recurring School Fees Without Taking Loans?
Many parents treat school fees as a monthly burden or, worse, a reason to take out high-interest personal loans. Using debt for recurring expenses is a wealth-killer; it eats into your future savings potential and compounds your stress. The superior alternative is to flip the EMI. Instead of paying interest to a bank, pay "interest" to yourself through a Systematic Investment Plan (SIP). For young children, starting an SIP at birth creates a pool that can be partially liquidated every few years to cover admission or term fees. After a point, you will find that the returns itself will be enough to pay the fee, leaving your corpus intact for higher education or other goals.
For older children, follow a "bucket" strategy - Short -term (fee required for next 2 years), Medium (2-5 years), and Long-term (> 5 years). Take the help of an advisor to align your mutual fund choices with when the money is actually needed.
Insight: A SIP is essentially a "reverse loan" where you earn the interest instead of paying it, turning a recurring expense into a self-funding asset.
To do: Set up a dedicated SIP for school fees today to avoid needing a personal loan. Step it up by at least 10% every year to match annual fee hikes.
4. How Do I Plan For Higher Education When I Don't Know The Child's Career Path?
Uncertainty about whether your child will study in India or abroad, or pursue medicine versus design, often leads to "analysis paralysis." The solution is to plan for the ceiling, not the floor. It is always better to be over-prepared. If you build a corpus for an expensive international degree and your child chooses a local college, the remaining money isn't lost—it can be redirected toward your own retirement or their wedding. By treating your education goal as a "maximum target," you ensure you never have to ask your child to compromise on their dreams due to financial constraints. Starting this SIP early effectively converts what would have been a massive future education loan into a manageable current investment.
Insight: Over-saving for education is a win-win; it either funds a premier degree or serves as a significant "bonus" for your own retirement goals.
To do : Factor in the costs of the most expensive education scenario (like a private medical college or an Ivy League degree) when setting your SIP amounts.
5. Can I Invest For My Two Children Together In A Single Portfolio?
While it may seem simpler from a paperwork perspective, managing one large "kids' pot" is a mistake. Each child represents a unique financial timeline. Your eldest may need a large sum for college in three years, while your youngest is still in primary school. If you club the investments, you risk overdrawing for the first child and leaving the second child under-provided. Furthermore, your own income and ability to save likely changed between the births of your two children. Separate portfolios allow for precision; you can adjust the risk levels and withdrawal strategies for each child independently, ensuring that neither sibling’s future is compromised by the needs of the other.
Insight: Mingling funds for multiple children create a "first-come, first-served" risk that can accidentally prioritize the elder sibling's needs over the younger one's.
To do: Open distinct folios for each child, clearly labelled with their names, to ensure their specific timelines and corpus requirements are tracked accurately. If you currently have one "children's fund," sit down this weekend and divide the assets based on goals for each child and their timelines.
6. When And How Should I Start Teaching My Child About Money?
Most parents focus on the "concept" of money (how to spend) or the "value" of money (why we don't waste it), but they miss the most critical lesson: the time value of money. Children need to understand that money loses value over time due to inflation and that the only defense is to compound it. Once your child reaches high school, the best classroom is your own financial plan. Show them how you are paying their school fess and how you are saving for their college. Explain why you chose certain funds over a savings account. By giving them practical insights into how your family builds wealth, you move beyond theoretical school lessons and prepare them for the real-world financial decisions they will face in adulthood.
Insight: Financial literacy isn't about teaching kids how to save; it’s about teaching them how to make money work harder than they do through compounding.
To do: Use your child’s own education fund as a "live case study" to show them how their money has grown through regular SIPs over the years. At dinner, explain the concept of "inflation" to your child using the price of their favourite snack ten years ago versus today.
If you wish to start saving for your children through mutual funds, reach out to us today!
