A reader asks, “Our daughter is one month old. How should we start investing for her future?” Starting on a clean slate is always the best way to start. Let’s dive straight into the goal-planning steps.
The goal-planning steps
- We need a target corpus after 17/18 years, depending on when she was born. That is after school graduation.
- Let us first set the target corpus = UG fee. The corpus can easily be enhanced to include a PG or other expenses. A UG fee of Rs. 1.5 lakh per semester x eight semesters + a joining fee of Rs. 5 lakhs + another Rs. 5 lakhs for relocation, travel, etc. Please make enquiries to set a target.
- So that is about Rs. 22 lakhs. Make that Rs. 25 lakhs as the current cost. That is, if your child were to enter a four-year UG program today, that is what it would cost approximately.
- What is the likely cost for your child after 17/18 years, as the case would be when we start planning?
- We will use inflation of 10%-12%.
- At 10% inflation, the corpus will be about Rs. 1.25 crores after 17 years.
- Suppose the parents can invest Rs. X each month for this goal. About 50-60% of X should be invested in stocks or equity mutual funds, assuming a post-tax return of 10% from equity. A good calculator can compute this X; see point 12 below.
- The remaining amount can be invested in debt instruments with a return of about 6%. Remember, this is not the return you will get next year. This is the return you expect after 17 years.
- But which debt instruments? We recommend PPF and debt funds. SSY (Sukanya Yoana can also be used, but it is more suited for marriage expenses and not a college education). Also see Sukanya Samriddhi Yojana vs PPF: An Illustration.
- The debt funds depend on your comfort level with the bond market. By increasing NAV volatility, our recommendations are Money market funds < Edelweiss Short Duration Index Fund <= Corporate Bond Funds <=Parag Parikh Conservative Hybrid Fund <= Gilt Funds.
- The above-mentioned future target corpus is only for UG education. If you wish to include her PG education expenses, marriage expenses, etc., you can inflate the above corpus suitably and continue investing in it beyond school.
- What is more important is asset allocation after we start investing. We cannot hold on to 50% or 60% for most of the journey. A string of poor returns will upset our plans. Entering the above details into our robo advisory tool, we get 60% equity for 7-8 years and then gradually taper down to 0% for the rest of the journey. Many goal calculators input a single future return expectation to compute the monthly investment required. This is incorrect, as the asset allocation will vary and affect the required investment amount.
Suggested asset allocation by the freefincal robo advisory template for a child’s college education 17 years away. - With this variable asset allocation, the total monthly investment required in the first year of investing is Rs. 15,500. Each year after this, the investment should be increased by 10%.
- Do not rush to invest Rs. 1.5L a year in PPF (or SSY) just because it is tax-free with a guaranteed return. In the above plan, the total investment in debt will only be Rs. 74 K. Until the equity allocation starts decreasing, as mentioned above, the debt investment will not exceed Rs. 1.5 L a year. After this, a debt mutual fund may be added to accommodate the higher debt investment.
- The above calculation should be repeated each year with updated inputs and assumptions.
All the best!
For other illustrations, see:
- I am 30 and wish to retire by 50; how should I plan my investments?
- Retirement plan review: Am I on track to retire by 50?
We are on Google News
Use this button to add freefincal.com as a preferred personal finance source on Google News. 
Add freefincal as a preferred news source
You can also follow freefincal on Google News. 
Explore 1,000+ videos on YouTube!
Subscribe to get posts via email!
Join 32,000+ readers and get free money management solutions delivered to your inbox! (Link takes you to our email sign-up form)Join our WhatsApp Channel
Explore our products
🔥Join our community of 9000+ users! 🔥 Use our Robo-advisory Tool to create a complete financial plan! More than 3,500 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary. Our Flagship Course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence. Join the freefincal investor circle! An exclusive space for investors, advisors, fintech employees and students to access financial planning and insurance tools, mutual fund and stock analysis tools, coding strategies and Excel macros for data extraction. 750+ members are now part of our investor circle. Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos! Track your mutual funds and stock investments with our Google Sheet! We also publish monthly screeners for- Equity mutual funds
- Debt and hybrid mutual funds
- Index funds
- ETFs
- Momentum and low-volatility stock screeners
Our Podcast: Let's Get Rich With Pattu
On Spotify: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
Audible Link: Listen to the Let's Get Rich with Pattu Podcast
You can also watch podcast episodes on the OfSpin Media Friends YouTube Channel
Listen to the Let's Get Rich With Pattu podcast on YouTube.
Now watch Let's Get Rich With Pattu தமிழில் (in Tamil)!About The Author
Dr M Pattabiraman giving a lecture
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free, AUM-independent investment advice. Connect with him via Twitter(X) LinkedIn YouTube Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (Published by CNBC TV18) for DIY investors. 
This book helps you ask the right questions and find the right answers. It also includes nine online calculators to create custom solutions.
(2) Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want. 
Both the boy and girl versions of "Chinchu Gets a Superpower".
Most investor problems stem from a lack of poor decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that matters not only for money management and investing but for every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say! 
Feedback from a young reader after reading Chinchu Gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from a young age. The importance of money management and decision-making based on their wants and needs. Very nicely written in simple terms. - Arun.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Our publications
Your Ultimate Guide to Travel
