Saving 1 cr for child gets 60% costlier with 3yr lag

If you want your child to pursue a reputed degree from a renowned university such as Harvard, where the current cost of that degree is Rs 1 crore, how much do you need to invest in a monthly SIP to achieve that goal for your newborn child who will need that amount at 18 years of age? How much extra investment you may require if you delay your investment by 3 and 6 years – see our calculations to understand.

Accumulating Rs 1 crore without factoring inflation is easy

“If you have 15 years to build a Rs 1 Cr corpus, you will need to invest Rs 30,000 per month in an instrument that gives you 12% returns. This will help you put together a corpus of Rs 93 lakhs in 12 years. You can slowly move this to debt options like FDs over the next three so that your corpus remains unaffected by market volatility and you have liquidity at the end of 15 years,” says Adhil Shetty, CEO, BankBazaar.com.

Also Read: Couple earning Rs 1.5 lakh/month can build Rs 1.24 crore corpus in 10 years, this financial advisor tells how it can be possible

However, when you consider the fact that the education cost will go up with time you will be required to save a much bigger amount and hence think of better ways of achieving that.

Factor in the inflated cost of education in 18 years
Before planning your investment, you must factor in the cost that you have arrange after 18 years when your child will be ready for higher education. If the cost of education is Rs 1 crore today, at 5 per cent inflation, its value in 18 years will be over Rs 2.41 crore. It means you need over Rs 2.41 crore to get the same education that you can get for Rs 1 crore today.
Also Read: Will Rs 10,000 SIP for 25 years be enough for your retirement? Here’s how to check

How should you approach this investment
If you start from the day go you will have 18 years to accumulate Rs 2.41 cr education corpus by the time they turn 18. We have seen that an SIP of Rs 30,000 is not sufficient to earn more than a crore in 15 years at 12% return. Trying to get a higher return could be risky so a better way to achieve this could be to increase your SIP amount each year. This can be done through a step up SIP. At the early part of career, people have lesser income, which rises with time. They can channelise this income through step up SIP.

Step up SIP to achieve Rs 2.41 crore corpus in 18 years
Let’s assume you start a step up SIP for your new-born child, increase the investment amount by 8% yearly and get 12% annualised return for 18 years, your estimated starting SIP will be Rs 20,413 and you may achieve the Rs 2.41 cr corpus with Rs 91.74 lakh overall investment.

If you delay investment by 3 years
If you start an SIP investment when your child is 3 years old, you will have a 15-year investment horizon, but it will increase your investment amount by nearly 17%.

Not just that, the initial step up SIP investment will rise by 60.52%.

To achieve a Rs 2.41 corpus in 15 years, your estimated step up SIP amount in the first year will be Rs 32,766, and the estimated total investment will be Rs 1.07 cr.


If you delay investment by 6 years
A 6-year delay means you have 12 years to invest. But it will cost you over 36% extra investment.

The initial step up SIP investment amount, meanwhile, will rise by 168.52%, or 2.68 times.

While a 6-year delay may rise your initial step up investment cost by 2.68 times, your monthly income in the same duration may rise by just 50%.

To achieve the target in 12 years, your estimated SIP in the first year will be Rs 54,812 and the estimated overall investment will be Rs 1.25 cr.


Conclusion
Achieving a Rs 2.41 crore corpus for a child’s foreign education may appear to be a tough task for a salaried individual with other liabilities and a limited scope for salary growth, but all it requires is an early start, SIP step and consistency. The late you begin, the higher the cost of delay.