Categories: Financial Planning

Calculate how much you need to invest for your Kid’s Education

As a caring parent you would always want your child to get the very best. With growing standard of living, the Kid’s education expenses are consistently rising. I believe the average rate of education inflation (the rate at which education expenses are rising) is around 10% to 15% depending on the location.

In this post let us understand – How to calculate the future value of Kid’s Education Goal amount? How much should you save/invest for your kid’s College education?

Calculate the Future Value of Kid’s Education Goal Amount

For calculating the future cost of education expenses, you need below details:

  • Kid’s age
  • No of Years remaining to attend college
  • Current value (cost) of College Education. You may have to do little bit of research to find out the average cost of college education in your preferred location.
  • Education Inflation (We can safely assume this as minimum 10% 🙂 )

Let us do the calculation with an example.

Example – Mr Sundaram wants to plan for his kid’s higher education. Child’s age is 5 years and will attend college in 12 years from now. As per his research, he came to know that the current cost of Engineering Education in his city is around Rs 5,00,000. He wants to find out what is the Future cost of his goal?

I have used MS-Excel’s FV function to calculate the future value of goal amount. (FV Function variables are Rate 10% from B4 cell, Duration 12 years from B3 cell and Current cost of education Rs 5 Lakh from B5 cell). So, at 10% inflation rate the college expenses of Rs 5 Lakh will become Rs 15.69 Lakh in 12 years. Mr Sundaram has to accumulate this amount for his Kid’s education.

(For  detailed explanation on “How to calculate Future Value?’ – Click here )

How much do I need to invest for my Kid’s education?

Mr Sundaram now knows that he requires around Rs16 Lakhs in 12 years from now. He further wants to calculate how much he has to save every year to achieve the goal amount. He also wants to find out how much he should save if he opts for Fixed Deposits (or) Mutual Funds (or) Stocks?

I have used MS-Excel’s PMT function to calculate the required Yearly Savings amount for Kid’s education. ( PMT function’s variables are D9-Rate-9%, B3-Term-12 years and B7 -Target Goal Amount-Rs 15.69 Lakh).

Scenario 1 (If Savings are invested in Fixed Deposits)

Mr Sundaram has to save Rs 77,913 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Fixed Deposits which may give 9% returns. (You may refer the above “PMT function” image on how to calculate.)

Scenario 2 (If Savings are invested in Mutual Funds)

Mr Sundaram has to save Rs 73,382 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The yearly savings amount is invested in Mutual Funds and he expects 10% returns from Mutual Funds.

Scenario 3 (If Savings are invested in Shares)

If Mr Sundaram decides to invest in Stocks then he has to save Rs 65,023 per year for the next 12 years to achieve his goal amount of Rs 15.69 Lakh. The stock investments may give him returns of 12%.

 Important Points to Ponder upon

  • You can consider the above  yearly savings amount (I have provided a calculator below. You can use it to know your goal amount) as the minimum contribution amount that you need to save/invest. As and when your income increases you can keep contributing more towards your yearly savings. Accordingly, you can re-calculate the required Target goal amount as explained above.
  • If you choose to invest in mutual funds (or) stocks then it is better to move your fund to Safe Investment avenues like Fixed deposits, atleast 2 or 3 years before the Target goal year. By doing this you may prevent the accumulated fund from eroding. (Read : ‘Best Equity Mutual funds‘)
  • Besides these savings, have a good life insurance coverage. Consider taking Term insurance plan (if  you do not have). It is better to avoid Child Education Insurance plans. I believe Balanced Mutual Funds with the combination of Term Insurance plan may prove to be a good decision. (You may like visiting my post on “Best Balanced Mutual Funds.”)
  • Do not buy a financial product just because the scheme name has “Child plan” on it. Understand the features, benefits and risks associated with that investment option.
  • Regularly monitor and track your investments. Also, be informed regularly of the cost of education for various courses.
  • After reaching the goal year, based on the fee payment conditions (like one time payment or per year basis) you may still need to manage the fund carefully.

Download Calculator – Kids’ Education Goal amount . (In-fact you may use this calculator for any accumulation goals like vacation planning, Marriage expenses etc.,)

Liked the post? Please share it with your friends. What is the average  per year increase of cost of college education in your location? Kindly share your comments.

Continue reading :

(Image courtesy of photostock at FreeDigitalPhotos.net)

This post was last modified on July 10, 2023 12:02 pm

Sreekanth Reddy

Sreekanth is the Man behind ReLakhs.com. He is an Independent Certified Financial Planner (CFP), engaged in blogging & property consultancy for the last 14 years through his firm ReLakhs Financial Services . He is not associated with any Financial product / service provider. The main aim of his blog is to "help investors take informed financial decisions." "Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. The information provided, therefore, should not be viewed as financial, legal, accounting, tax or investment advice."

View Comments

  • Hi,
    I openned the PPF Account with initial amount is Rs 10,000/ on 10-August-2015. And then i deposit Rs 40,000 on
    12-Sep-2015.
    Please answer my below questions

    Question 1) Can i get any interest on Rs 10,000 for of month of September(30-Sep-2015) or Not?
    Question 2) Can i get any interest on whole Rs 50,000 for of month of October(31-Oct-2015) or Not?
    Question 3) This Year shall i deposit another 1,00,000 on 5-October 2015 or not? If Yes means how much interest can i get for the whole amount(Rs 1,50,000 ) on 31-October-2015 and on 31-March-2016 OR it’s only for Tax saving?
    Question 4) I would like to know what is the best date for next deposit (yearly or monthly basis)to get maximum returns & which one is good, monthly deposit or yearly deposit.?

    • Q 1- YES
      Q2 - YES
      Q3 - Interest on Rs,1,50,000/- for the period w e f October to March will be paid
      Q4 - Best option is to deposit Rs, 1,50,000.- ( maximum limit ) on 5th April - so that you get the interest on the total amount for the complete year

      Note - (a) the interest is due on monthly deposit as on 5th of the month
      ( b) there is no interest for deposit after 5th of the month
      (c) the interest is paid only once a year - after March I . e the interest is compounded annually

  • Hello Sreekanth,

    I am a Senior Technical Analyst working in Boston, US. I am interested in investing for my children's education. The time horizon is 20 years and 23 years from now. I am looking for two corpus funds of 1.5 Cr and 1.8 Cr. I would love to invest through SIP. Please suggest me few mutual funds and a financial plan if you could to hit these targets.

    Appreciate your help!

    Thanks
    Vamsi.

  • I'm from Chennai. I would like to invest to my daughters 7 yrs old and 3 yrs old. The policy should help for their education at their age of 17 yrs and to their marriage on their 25th yrs. My premium could be cumulative of 5 - 7 thousand per month for both. Pl suggest a best plan for me to start immediately. Thanks in advance!

  • Hi Shrikanth,
    My father wants to invest Rs. 10000 for my 2 yrs old daughter on her name. This is the one time investment. Could you please suggest any best option without having any tax implications?

    Thanks
    Kshitij

  • Sir I have 3 year old daughter and I want to know various plan ranging from 1000₹ to 3000₹ per month. Please send me whole detail on my email : sykpec@gmail.com
    Thanking you

  • Hi Shreekanth,

    I am 30 yr old married guy and having 3 Month old daughter. I earn 80k Per month and having below investment

    Term Insurance - HDFC Click2Protect Plus of 1 Cr (Taken Last month)
    LIC Whole Life Plan -(Taken in 2012) Premium around 24K/yr for 12 yrs to get 40Lac at Age 79.
    Health Insurance - ICICI PruLife Health Saver Plan for 5L per Year for Me, Wife and Baby.

    PF - Around 45000 per Annum + Equivalent Employer contribution (Since last 1 Yr)

    HL - around 4Lac pending. It will be cleared by June 2015.

    SIPs investment of total Rs. 8000/- per Month as below (All are planned for long term for around 20yr considering daughter's education and marriege)
    On my name
    1) UTI midcap fund (G) Rs. 2000/- (From last 5 yrs)
    2) ICICI Tax Plan Regular (G) Rs. 2000/- (from last 2 Month)
    3) DSP Black Rock Tax saver fund Reg (G) Rs. 2000/- (from last 2 Month)
    On Wife name
    1) ICICI Pru value Discovery Reg (G) Rs. 1000/- (From last 4 yrs)
    2) HDFC Equity fund (G) Rs. 1000/- (From last 5 yrs)

    Please suggest on above investments and what kind of additional investment planning/modification should I do and where ?

  • Im 25years unmarried, i wish to deposit for my future. My monthly salary is 20k. Can you please guide me.

    Thanks in advance.

      • Hi Sreekanth,

        I dont have any incurance plan and i dont have emergency fund too. I was confused to invest, where to invest, how much invest monthly, which plan to choose, etc.

        • Dear Siva,
          Suggest you to first take a health insurance plan for Sum assured of around Rs 3 to Rs 5 Lakh.
          Start a RD account and deposit for 6 months or so. Accumulate atleast 3 months of your monthly expenses in this RD account.
          Do you have any family member(s) who are financially dependent on you?

          • Hi Sreekanth,

            Thanks for your reply.

            Can you please suggest me in which can invest for health insurance and RD, tell me best & safe for investing.

            Yes my parents & grand-parents are depends on me financially, also i have education loan too.

  • Thank you so much Sreekanth, a lot of useful information to the beginners in personal finance. Outstanding job in making others educated in personal finance.

    My son age is 8yrs. i would like to save Rs 2000 to 5000 pm for education purpose (after intermediate) please let me know best investment/saving sceame for good returns

    • Dear Mohan,
      Thank you for your appreciation.
      Before working on Investment planing aspect, kindly allow me to ask few questions..
      Do you have sufficient life insurance cover?
      You have 8 more years to accumulate a fund for your Kid's education goal (Graduation). Consider investing in mutual funds. Do you have prior prior
      experience with mutual funds?

  • I am Shivkumar Kurnawal (age 34 year) working in a BSNL, Public sector Undertaking as a Jr. Telecom Officer at Pune.
    My son omkar Kurnawal (age 4 years) now taking admission for L.K.G., My wife is homemaker. We are family of three.

    Sir, i want suggestion/guidance for investing money for the education of my son & want plan for retirement.

    Now he his of 4 year old. At his age of 17/18, i.e. after 13/14 year his higher education will start may be medical/engg/Management as pr his choice, so i want certain lump sum about minimum of 40 lakhs.

    My Salary & current investment details are as given below

    After deductions of home loan EMI take home pay is=30,000/-

    My home expenses=17,000/-

    Personal/Home Loan=12, 00,000/-
    of which Rs.2,00,000/- is paid, Monthly EMI of Rs.15,000/- deducted from my account.

    My PPF account- investing ----Rs.12000/Annum........currently hold Rs. 50,000/-
    My Son, Omkars PPF account--- Rs. 6000/annum.........currently hold Rs. 6000/- opened in dec-14

    Towards Employees providant fund my salary deduction is
    7000/- which is 12 % of basic salary+DA

    My Current Investment detail are as follows:---

    1. HDFC Children Gifts - Investment Plan - Direct Plan - Growth --------Rs.25000/- lumpsum invested in month of oct-2014

    SIP:

    HDFC Mid-Cap Opportunities Fund - Growth - Equity - Diversified---- Rs.1000---monthly
    2. Reliance Growth Fund - Direct Plan - Growth - Equity - Diversified---Rs.1000-monthly
    3. SBI Blue Chip Fund - Growth - Equity - Diversified----Rs. 5000-----one time investment
    4. Reliance ELSS fund: ---------Rs.500---monthly.

    Insurance:

    SBI E-SHIELD POLICY FOR Rs. 30 lakhs for year of 30 year----- yearly premium is ---Rs.7500.

    KINDLY SUGGEST suitable investment strategy to meet my goals.
    Pl. intimate me if any other details are required.

    Thanking You.

    PL GIVE YOUR CONTACT NUMBER SO THAT I WILL CALL YOU SIR .

  • Dear Sreekanth

    I am 32 yr old; have one kid-age 3 yrs; Monthly income - 80k.. I am working as a consultant and have no PF option in my company.

    Please advice which is the best option for investing money considering kid education.
    I have seen " Kids Edu calculater" it was helpful... But I can save only around 8 K per month due to current financial commitments.
    .
    My plan is to invest in SIP mutual funds and Sukanya samridhi saving scheme.. Planning to invest for 15-20 Years long team (Only for Kid Education + Marriage)

    So far I don't have any term policy .. Have only Medical Insuarance in Star health as follows
    1. For my family ( 3 members) - 5 Lacs cover
    2. Father - Age- 68 - Red carpet policy - 1 Lac
    3. Mother- Age-60- 1.5 Lacs

    Yesterday I have applied Term insurance in HDFC ( Click 2 protect plus) for 1.5 Crore and decided to take additional 50 Lacs term insurance in LIC ( Since my frieds advised to take term policy in 2 differenent insurance company and especially one in LIC .)- Pl share your views on this,

    For HDFC Term insurance ( 1.5 Crore) I have to pay 20,000 approx. & for LIC I got info that I have to pay 17.5 K for 50 Lacs cover???

    Am just considering below option at present, pl share your views if any changes to be done

    1. HDFC Balanced fund ( Growth)- Rs- 2000
    2. UTI mid cap - Rs- 1,000
    3. HDFC Tax saver fund ( or) Franklin India Tax shield - Rs-1,000
    4. ICICI Prudential value discovery Fund ( or) ICICI Prudential dynamic plan - Rs-1000
    5. Sukanya samridhi scheme - Rs- 3000 / per month ( Want to save some amount

    Please suggest what kind of additional investment plan should I do & also let me know if I need to make any changes in my saving plan

    Expecting your valuable feedback.

    Thanks
    Venkat

    • Dear Venkatesh,
      Actually, there is no need to take two policies from two different companies. But, if you are comfortable by doing so, no harm though. Do note that you need to provide accurate information in proposal forms. Do not hide any facts.

      Shortlisted funds are fine.

      Consider taking a Super top up health insurance plan. Kindly read my article "Top up & Super Top up Health Insurance plans".

      • Dear Srikanth,

        This is Venkat. from chennai.
        Hope you are doing fine..
        First, i would like to thank you for sharing valuable articles and advise on Finance planning. it is very easy to understand.
        I am also getting regular updates from Relakhs and useful for me to analyze and understand about my portfolio.

        My personal Details :-

        I am 33 yrs old. have one kid ( daughter) -Age-4 ; I am working as a consultant in a Pvt Ltd firm..
        Have Medical policy - 12 Lakhs in star health for family ( 5 Lacs Base+ 7 Lacs Top up)
        and Taken Term Insularance last year in HDFC click 2 protect for a value of 1.5 Crore.
        Bought an old Apartment two years back and housing loan EMI- Rs- 40,000

        My Financial plan:

        All my goals and requirement are long term. So I had to start investments for following needs

        1. Child Education - Target 15 Years
        2. Daughter Marrriage - 20 Years
        3. Retirement corpus - 25 Years

        Last year I have opened MF account in HDFC Netbanking and I am selecting funds myself and have been investing from last year april .... I made all my savings in Mutual funds through SIP- Growth option.

        With refer to your suggestion , Last year i have started my investment as follows..

        Kid Education:- ( Started 2015- April)

        ( I have chosen Balanced fund ( 25%) + Diversified Funds (60%) + Equity (15%) : Investment period : 15 Years )

        1. HDFC Balance fund- Rs-2000
        2. Franklin india Prima plus - Rs- 2000
        3. ICICI pru value Discovery - Rs- 2000
        4. UTI Equity Fund - Rs- 1000

        Total :7000 ( Expected amount after 15 Years - 25-30 Lacs ( Min)

        Kid Marriage :- I have purchased a land to meet this future need . Hopefully the value also increasing as i expected.

        Retirement :

        1. Axis Long term Equity Fund - Rs- 2000 ( This i opted to get benefit of saving taxes -Started 2015- April)

        As such i am allocating only Rs- 2000 every month for my ret. corpus.

        Considering my current expanses, i would need minimum Rs- 5 Crore as a retirement corpus.
        With the help of your retirement calculator, i could understand that i have to invest minimum Rs - 20,000 every month to meet the target.

        So,i have decided to invest Rs- 6000 in the following funds this year. & planning to increase every year Rs- 2,000 for next 10 years. ( i.e.,10th year end my monthly SIP amount will be Rs- 8000+20000 =28000 to create retirement corpus.

        Since the investment duration is more then 20 years, I have shortlisted Midcap + Equity funds in 60: 40 ratio.

        1. Mirre asset Emerging Blu chip-Rs- 2000
        2. UTI Mid cap - Rs-2000
        3. Birla sunlife front line (G) - Rs- 2000

        4 .TATA balanced fund ( thinking as an option)

        Hope i can meet the required corpus with this plan, if i get 10- 12% annual return.

        I would request you to review and advise me, if any changes/ corrections to be done in my plan.
        Based on your feedback, i will proceed further.

        Thank you,
        Venkatesh.
        Chennai

        ,

        • Dear venkateshwaran,
          I am very glad to know that you are planning your personal finances based on our articles. Thank you!
          Your analysis, funds & plan looks fine.
          1 - Suggest you to buy a Personal Accident Insurance plan (if you do not have one).
          Kindly read: Best Personal Accident Insurance plans.
          2 - Retirement Goal : You may replace UTRI mid-cap with HDFC mid-cap opportunities fund / Franklin Smaller companies fund.
          Also read: MF portfolio overlap analysis tools.
          3 - Do maintain sufficient 'emergency fund' in cash or near cash to meet any unforeseen expenses.
          4 - You may consider creating a WILL at the earliest. (Read : How to write a WILL?)

          • Dear sreekant, thanks for your valuable feedback.. I'll do as you advised.. thanks for your support as always......

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Sreekanth Reddy
Tags: Financial literacy financially literateFinancial Planning PyramidFV FunctionKid's education goalPersonal Financial Planning - List of ArticlesPMT Function
July 10, 2023

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