Gaurav has a child of 10 years of age. He wishes to save for his child’s higher education in India. The educational cost for receiving a degree from a decent college in India is around Rs 20 lacs. He knows that the effect of inflation on education is around 10% per annum. This means that the same Rs 20 lacs money would decrease in value over time as the purchasing power parity of money decreases over time due to inflation. In essence, Gaurav would need to save at least Rs 50 lacs to send his child to a good college in India 10 years from now. Now, Gaurav wants to understand the amount of monthly SIP investment needed to accumulate a corpus of Rs 50 lacs ten years from now. Let’s calculate the same.
SIP calculators are a great investment tool that can come handy to evaluate the monthly amount needed to reach a specific corpus. Using an SIP return calculator, you’d find that accumulate a corpus of Rs 50 lacs in a span of 10 years, one would need to invest around Rs 21,000, assuming that the SIP mutual fund investments that he chooses to invest in offer average returns at 12% per annum. If the SIP mutual fund would have offered average returns at 15% p.a., the same monthly investment amount would decrease to Rs 18,000 per month. To evaluate the best mutual fund investment plans for one’s investment portfolio, one can always take the services of a mutual fund expert or an advisor who can help choose the right investment options for one’s portfolio. Always make it a habit to ensure that the investments that you choose must align with your financial objectives, risk profile, and investment horizon. No doubt, there are certain mutual fund schemes that might offer significant returns at whopping 50% interest p.a. However, these mutual fund investments also have huge potential for significant losses. So, one must have the stomach to bear these risks. Hence, even in the lowest possible scenario in terms of SIP mutual fund investments performance, any amount around Rs 18,000 to Rs 21,000 per month can help an investor to achieve a corpus of around Rs 50 lacs after a span of 10 years.
However, it might be a case that Gaurav is initially unable to save Rs 21,000 per month for his child’s educational plans. In such a case, Gaurav can choose to begin an SIP investment with a smaller investment amount and gradually increase this investment amount on a periodic basis for a given period of time through step-up SIPs. Step-up SIPs are a great investment tool as an individual’s income or salary is expected to rise with time, and one should increase their investments as and when the inflow of cash rises. With step-up SIPs, Gaurav can choose to invest Rs 15,000 per month initially and increase this amount by 15% each year to achieve a corpus of Rs 50 lacs in a span of ten years, provided that the mutual fund schemes offer annual returns at around 12%. Happy investing!