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Goal-based investing: How to save for children's future

Save for children’s schooling, college education and marriage via goal-based investing.

Goal-based investing: How to save for children's future


Posted on 17 Mar 2021
Author: Sayan Sircar
Tags: Tags Children ;  Set Goals
10 mins read
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Save for children’s schooling, college education and marriage via goal-based investing.

Save for children's schooling, college education and marriage via goal-based investing

Every parent considers their children’s education to be their most important financial goal. After all, a degree from a prestigious institute like IIT, IIM, AIIMS, Oxbridge or MIT opens up unlimited opportunities. Similarly, a child may wish to pursue a career in arts, music, theatre, science or commerce from any global university or school of repute.

📚 Topics covered:

What are the typical goals for children?

  • School admission around age four
  • Miscellaneous significant expenses every few years (school trips etc.)
  • Undergraduate College at 17-18
  • Postgraduate College (2 years, timing unknown, > 23y)
  • Marriage
  • Down payment (a part of it) for their future house

A typical example of children’s goals

We consider an eight-year-old child whose parents are planning for

These goals have been captured, and a goal-based investing calculator is used to calculate the investment amounts.

A few observations:

  • the goal value will increase with inflation over time
  • goals like a college education is not a single payment but a series of payments that begins with entrance examination costs
  • the further the goal, the higher the target corpus
  • the investment amount will have to be increased with time as a step-up SIP
Age Year Goal Description Cost today Target goal value Portfolio balance SIP amount (yearly)
8 2024       0 5.0
9 2025       5 5.5
10 2026       11 6.1
11 2027       18 6.7
12 2028       27 7.4
13 2029       36 8.2
14 2030       47 9.1
15 2031       59 10.0
16 2032       74 11.0
17 2033 Entrance Exam 2 4 86 12.2
18 2034 UG Year 1 6 13 90 13.4
19 2035 UG Year 2 7 17 92 14.8
20 2036 UG Year 3 8 20 92 16.4
21 2037 UG Year 4 9 24 90 18.1
22 2038       114 20.0
23 2039       143  
24 2040       152  
25 2041 PG Year 1 10 33 127  
26 2042 PG Year 2 12 42 90  
27 2043       96  
28 2044       102  
29 2045       109  
30 2046 Marriage 10 44 69  
31 2047       74  
32 2048       79  
33 2049       84  
34 2050 House 15 84 0  

In the example given above, the portfolio will look like this over time.

(click to open in a new tab)
Calculation of SIP amount for multiple goals

This post on estimating the cost of the degree shows how to get to the starting point of setting the goal.

Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.

How to estimate the SIP value for children’s goals

Prerequisites before starting to invest for parent

Also read
How does the SEBI ban on pool accounts affect your mutual fund investments?

Things to know: what do and what to avoid

Avoid insurance plans for children: these have names with the words child, scholar, kid etc. in them: these are traps for parents to waste their money

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  • Avoid insurance plans: these have names with the words child, scholar, kid etc. in them: these are traps for parents to waste their money
  • Gold can be bought for marriage but not too much
  • Sukanya Samriddhi Yojana (for girl child) has 21-year lock-in and may be more appropriate for parent’s retirement than for UG education
  • An additional 150,000/year can be saved in a PPF account in the child’s name for 15 years

Read more on operational aspects of investing here: Should you invest in the name of your children?

How to save for goals

We follow the standard framework replicated here:

  • Decide the purpose (why), horizon (when) and cost of the goal today
  • Assume at what rate the cost of the goal increases yearly
  • Decide how much risk you want to take for this goal
  • Formulate an asset allocation suitable as per assumptions in the previous steps
  • Start a SIP in funds as per asset allocation and decide on a review frequency
  • On every review, see if you are on track and manage risk via rebalancing your portfolio.

This post deals in more detail regarding where to invest for children’s goals.

You can perform these calculations using the Arthgyaan Google sheets-based goal planner. In addition, please refer to this post regarding how to set such goals. This post deals with how to prioritize our retirement over goals for children and is a must-read if you think that you cannot manage every goal at present.

Does this investment process really work?

(click to open in a new tab)
Success Ratio for investing for 10 years

We have prepared a simulation using 26 years of market data in India to show the effectiveness of the goal-based investing process that shows how effective the process is for reaching close to the target. You will find more details here: What is the best way to invest for your child’s college education?

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1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself.

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