Education costs in India are rising at 10 to 12 percent per year. A professional degree that costs Rs. 15 Lakhs today will cost approximately Rs. 40 Lakhs in 10 years. An overseas education that costs Rs. 60 Lakhs today could easily be Rs. 1.5 Crores in 15 years when you account for currency depreciation and inflation.

Most parents know this is coming. Very few have a specific plan for how to meet it. Here is a structured approach to building an education corpus that works.

Step 1: Estimate the target amount

Start with what the education will cost today. Then apply an education inflation rate of 10 percent per year. If your child is 5 years old and you are planning for college at 18, that is 13 years of inflation.

Rs. 20 Lakhs today becomes approximately Rs. 68 Lakhs in 13 years at 10 percent inflation. If you are considering overseas education, double or triple that number and factor in currency risk.

This number feels large. That is fine. The point is to start with an honest target and work backward to what you need to invest today.

Step 2: Choose the right investment vehicle

For a goal that is more than 10 years away, equity mutual funds are the most appropriate choice. Historically, diversified equity funds have delivered 12 to 15 percent CAGR over long periods, well ahead of education inflation.

For goals that are 5 to 10 years away, a mix of equity and debt makes sense. As the goal gets closer, shift more of the corpus to debt to protect it from equity volatility.

For goals that are less than 5 years away, prioritise capital protection over returns. Debt funds or fixed deposits are more appropriate.

Step 3: Calculate the monthly SIP required

Working backward from a target of Rs. 68 Lakhs in 13 years at 12 percent CAGR, you would need approximately Rs. 18,000 to 20,000 per month in a SIP.

If that amount is not affordable today, start with what you can and increase the SIP by 10 to 15 percent every year. Starting early and increasing gradually will get you to the same place.

Common mistakes to avoid

Investing in child insurance plans that mix insurance and investment. These deliver poor returns and the life cover is usually inadequate. Buy term insurance separately and invest in mutual funds.

Keeping the education corpus in a savings account or fixed deposit. At 7 percent FD returns versus 10 percent education inflation, you are falling behind every year.

Not starting because the target feels too large. A Rs. 5,000 SIP started today is worth far more than a Rs. 20,000 SIP started in five years. The early years are the most powerful in compounding.

A note on overseas education

If overseas education is a possibility, plan for it separately in addition to your domestic education corpus. Currency depreciation adds significant risk and the costs are substantially higher.

We work with several NRI families and families planning for overseas education at Nandi Nivesh. The planning approach is similar but the numbers and the investment structure are more complex. If this applies to you, it is worth a detailed conversation.