With college costs rising steadily at home and abroad, parents are now looking to build an education fund of around Rs 1 crore. The financial goal is achievable without taking excessive risks, provided you start early and follow a disciplined plan.
The first step is to understand the power of time. If the child is very young, say 2 to 5 years old, you have 12 to 15 years to invest.
Parents typically consider two main approaches. The first is combining term insurance with mutual fund investments and debt instruments, and the second is child insurance plans. These plans combine investment with life cover and promise a lump sum at maturity.
Combining term insurance with mutual fund investments and debt instruments
Combining term insurance with mutual fund investments and debt instruments is a more flexible and often more effective approach. You buy a pure term insurance policy to secure your child’s future in case of any unforeseen event. Term plans offer high coverage at a low cost. A Rs 1 crore term insurance cover for a 35-year-old in Delhi costs roughly Rs 1,000 a month.
Alongside this, you invest regularly in mutual funds, especially through systematic investment plans (SIPs). For example, a parent investing Rs 20,000 a month in an arbitrage fund, with an expected return of around 12 percent annually, could build a corpus of around Rs 90 lakh to Rs 1 crore over 12-15 years.
Besides, one may opt for aggressive mutual fund investing, adding some exposure to safer debt instruments like the Public Provident Fund (PPF) to further reduce risk. The Sukanya Samriddhi Yojana (SSY) is again a good option for a girl child, offering relatively high fixed returns with tax benefits.
A PPF (current interest rate is 7.1 percent) can help you build about Rs 40 lakh in 15 years by investing Rs 1.5 lakh annually (Rs 12,500 per month). To reach Rs 1 crore, you can complement this by adding a mutual fund SIP of Rs 10,000 a month, which can grow to around Rs 60 lakh over the same period, assuming a 12 percent return. This combination balances safety and growth rather than relying solely on market-linked investments.
If you have a girl child, the SSY offers a stable option. It can build a corpus of about Rs 71 lakh over its 21-year maturity, while a monthly SIP of Rs 3,000 in mutual funds, assuming a 12 percent return over the same time period, can help generate the remaining Rs 30 lakh.
The key is to avoid putting all your money in one place. A diversified approach helps manage risks while ensuring that your investments grow steadily over time.
Child insurance plans
In a child insurance plan, which combines life cover and an investment avenue. The parent pays regular premiums over a selected period, while the insurance company builds a corpus on their behalf, giving them life cover.
“If the parent lives beyond the policy’s term, the maturity amount will be paid out to cover the child’s educational expenses or other purposes. If the unfortunate happens, the insurer pays a lump sum on the spot and continues to fund the policy so that the final payout is not affected,” said Sarita Joshi, Head of health and life insurance, Probus.
A disciplined investment of around Rs 1–1.5 lakh annually in a market-linked plan can help achieve Rs 1 crore corpus over a 12–15 year horizon, assuming 10–12 percent returns.
“Investors can choose between guaranteed plans, offering stable returns in the range of 4–6 percent, suitable for low-risk investors. Secondly, market-linked plans (ULIPs), which have historically delivered higher returns (8–12 percent) over the long term and are better suited for long-term goals like education planning,” Venkatesh Naidu, Director, Insurance Brokers Association of India (IBAI), said.
“If the child is young and the investment horizon is long (15 years), market-linked plans are more suitable as they allow compounding to work effectively. If the goal is 5–10 years away, it is advisable to gradually move towards guaranteed plans to protect the accumulated corpus from market volatility,” added Naidu.
A practical approach is to align the investment choice with the time horizon, balancing growth and safety.
Experts say that while child plans offer stability, they may not keep pace with education cost inflation, especially if the child plans to study abroad and the time-frame is short. The lock-in periods are also long, and flexibility is limited if your financial situation changes.
