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The first step is to find out the target date for the child education goal. You can take your own target tenure depending on your expectations and situation.

The next step is to determine how much does it cost in today’s value for giving education to your child. All of us have different aspirations when it comes to our child education, courses like MBA, Engineering, MBBS, Software related courses are on our minds.

So let’s say for example you determine that Rs 10 lacs is good enough to provide a good education to your child in today’s value. Now you can jump to next step, but before that make sure you understand the effect of inflation on our Money.

Next step is to find out how much amount you actually need in the end. For this you first need to determine the rise in education cost per year. As per the recent year numbers, Education costs are increasing at 10% per annum.

A decade ago you could have done an MBA at 1.25 or 1.5 lacs, but today it costs more than 4 lacs. That’s more than the average inflation. Education cost in our country has been increasing at higher speed than other things. so you need to consider some figure.

Target Amount = Amount today X (1 + rate) ^ Tenure

Example: Considering myself, the amount I would require today is around 8 lacs. My tenure is 25 yrs and rise in education cost I would like to take as 10%. So

Target Amount I need after 25 yrs = 8,00,000 X ( 1 + .10) ^25 = 86 lacs (approx)

So, need to make around 86 lacs in 25 yrs. Please note that this figure is based on certain assumptions. The actual Figure might need may be more or less to this amount. But still this is good enough, as we have a plan at least and we are near the goal.

This is an important step where each investor has a different level of risk appetite and knowledge. Depending on those factors one can choose different products for investments and can generate some return through it.

One who is not much interested in finances and has lesser risk appetite can choose Balanced Funds or Debt Funds and can generate around 10-11% returns. On the other hand a person who can take more risk and have more interest in finances can invest in products like Equity Mutual funds, ETF’s, Direct Equities etc and can target close to 14-15% returns. Getting more or less return is fine. All it matters is, does it suit your risk appetite?

There is no point in investing in risky products if you are not a risk taker. As a rule of thumb, a person who is investing for long-term like 10+ yrs should take Equity route because over that kind of time frame Equity has performed the best with maximum returns and with small risk.
So for long-term, Equity is what you should invest in and for short-term prefer equity only if you are great risk taker. Your range of return expectation should be from 8% – 15%.

You can use Our Child Education Calculator to calculate these figures. Just fill in your details and get the output. Now you can invest this money in product you have chosen.