A client of mine, a couple in their early 30s, came to me last year with a newborn and a simple question: how much should they be setting aside for her college fund? When I walked them through the actual numbers, they were stunned. What surprised them wasn’t the total amount – it was how much faster education costs are climbing compared to everything else in their budget. This is exactly why child education planning deserves its own dedicated strategy, not just a corner of your general savings.
I’ve spent over two decades in wealth management in Mumbai, and children’s education consistently comes up as one of the two goals – alongside retirement – that families most underestimate. Let’s walk through what a realistic plan actually looks like.
Why Is Education Cost Rising Faster Than Everything Else?
A private college education in India today costs anywhere between ₹8-20 lakh for a full four-year undergraduate course. A two-year postgraduate degree can run anywhere upwards of ₹25-70 lakh. If you’re planning to send your child abroad, tuition at an Ivy League school in the US alone runs upwards of $70,000 a year – and once you add boarding, books, and other costs, the total easily crosses $100,000 a year.
The tricky part isn’t just the size of these numbers – it’s the pace at which they grow. Education costs in India have historically escalated at around 10% a year, comfortably outpacing standard inflation. That means the cost you see today for a particular course is not the cost you’ll actually pay when your child is ready to enroll. A safe planning assumption is to build this 10% annual escalation directly into your calculations rather than working off today’s fee structure.
How Much Should You Actually Save for Your Child’s Education?
This is the question every parent eventually asks me, and the honest answer is that it depends heavily on when you start and where your child ends up studying. But here’s an illustration to give you a sense of scale.
Say a child is born today, and the goal is an Indian postgraduate degree currently costing ₹40 lakh, 22 years from now. Escalating that cost at 10% a year, the actual amount required at the time works out to well over ₹3 crore. That number understandably alarms most parents – until we walk through what a disciplined monthly SIP, started from birth and invested in equity, can realistically build over those 22 years.
The advantage you have with an education savings plan, compared to almost any other financial goal, is that you know the deadline in advance. A child’s college years don’t move – which makes this one of the most plannable goals a family will ever have, provided the planning actually starts early.
Where Should You Actually Invest for a Child Education Fund?
Building a serious child education fund almost always means leaning into equity as your core asset class, especially in the earlier years. Equity has historically been the best-performing asset class in India, with long-term returns in the range of 12-16% annualized. That’s essentially the only asset class capable of growing faster than the roughly 10% annual rise in education costs – which makes it hard to skip if you’re serious about closing the gap.
The habit that makes the biggest difference here is starting SIPs in the child’s name as soon as they’re born. This does two things at once: it gives you the maximum possible runway of 18 to 20 years to build the corpus, and earmarking the money in your child’s name removes the temptation to dip into it for anything else.
If you’re fairly certain your child will study abroad, it’s worth expanding your child education investment plan to include US equity funds. Alongside their own growth potential, these funds act as a natural hedge against rupee depreciation – which matters a great deal when the bill you’re eventually paying is denominated in dollars, not rupees.
Why Term Insurance Belongs in Every Education Plan
An education plan that only accounts for markets going right is an incomplete plan. One of the most overlooked pieces of child education investment planning is protecting it against the risk of a parent’s death or disability derailing everything built so far.
The fix here is straightforward: buy adequate term life insurance, sized so the payout could realistically cover the future cost of your child’s education if something happened to either parent. This isn’t about padding your protection unnecessarily – it’s about making sure the plan survives even the worst-case scenario, which a pure savings-only approach simply doesn’t account for.
Child Education Planning for Salaried Parents in India
If you’re salaried, the practical challenge isn’t usually finding the initial amount to start – it’s staying consistent and increasing your contribution as your income grows. The same discipline that applies to retirement planning applies here: your savings rate should rise every time your income does, not stay flat while your lifestyle expands around it.
This is also where many salaried parents run into a scheduling conflict – retirement and education often compete for the same monthly surplus, especially in your 30s and 40s. In my experience, both goals deserve dedicated, separate SIPs rather than one blended pot, since mixing them makes it far too easy to under-fund one to protect the other. I’ve written more about why retirement in particular deserves its own priority in Why Retirement Should Be the First Financial Goal You Plan For – the same logic of protecting your farthest, largest goals applies just as much here.
Starting with a clear plan is most important
I’ll be honest with parents who come to me later than they’d like – starting at age 8 or 10 instead of at birth isn’t ideal, but it’s far better than not starting at all, and it’s absolutely recoverable with the right savings rate and asset mix. What’s much harder to recover from is underestimating the actual target number and discovering the shortfall only when the fees are due.
According to College Board’s Trends in College Pricing report, US tuition and fees have consistently outpaced general inflation for decades – reinforcing exactly the kind of cost escalation assumption we build into Indian education plans too. On the domestic side, the Reserve Bank of India publishes regular inflation data that’s useful context, though as we’ve noted, education cost inflation in India tends to run well above the headline number.
If you’d like help running the actual numbers for your child’s specific timeline and goals, we offer a complimentary first review. You can also read more about how we approach this on our Education Planning page, or reach out directly through our About Us page.
Rohin Pagdiwala
Founder – Pagdiwala Investments, Mumbai
AMFI Registered MF & SIF Distributor with ARN 186203
APMI Registered PMS Distributor with APRN 00370
Tel: 9004231834