Your Money: Start early to build education corpus

financialexpress.com:

The rising cost of education is a big worry for today’s young  parents. The best option thus is to plan and accumulate an adequate corpus to meet this expense. Here is a step-by-step guide for creating your child’s higher education corpus.

Select two to three career alternatives and figure out their current costs. Assume an annual inflation rate for higher education of at least 10%. Once you have a ballpark figure for the required corpus, use online SIP calculators to know the monthly contributions needed for the target corpus.

Investing early allows you to derive the benefit of the power of compounding. For instance, parents aiming to create a higher education corpus of `50 lakh over a period of 21 years would require a monthly investment of about `4,500, assuming an annualised return of 12%. To create the same corpus within seven years assuming the same rate of return, one would need a monthly investment of  `38,500. Opt for the direct plans while investing through mutual funds.

Equities can be very volatile in the short term while generating higher returns than most asset classes over the long term. On the contrary, most fixed income securities offer higher capital protection and income certainty but yield lower returns over the long term. Thus, the allocation across various asset classes should be based on one’s risk appetite and the time left for the start of your children’s higher education.

Parents having higher risk appetite and an investment horizon of at least 10 years should primarily invest in equity funds. Those with less than five years and low risk appetite should go for fixed income instruments like debt funds and high-yield bank FDs. Those having investment horizons of less than five years but having