Understanding SIP and Its Benefits
A Systematic Investment Plan (SIP) lets you invest a fixed amount regularly on a monthly or quarterly basis in a mutual fund, buying more units when NAV is low and fewer when NAV is high.
By investing small amounts consistently, you ease out market volatility and let returns compound over years. SIPs also build investing discipline.
Over the long term, equity SIPs typically beat fixed deposits. Experts note that SIP mutual funds can deliver much higher returns than bank FDs if held for more than 3 to 5+ years.
Why SIP for Children’s Future?
- Rising education costs: Education inflation is rising constantly, so SIPs will help parents accumulate a large corpus by the child’s higher education or wedding years
For example, a ₹5,000/month SIP over 15 years at ~12% p.a. can grow into 25 lakhs
- Compounding power: Even modest SIPs grow exponentially. SIPs allow wealth to compound over time toward goals like education or marriage
- Rupee-cost averaging: By investing fixed sums monthly, you buy more units when markets dip and fewer when they rise. Over 10+ years, this can significantly boost returns
- Long-term discipline: Experts recommend staying invested through market cycles. For children’s goals, commit to SIPs and increase amounts with income. Tools like EduFund SIP calculators can project the corpus needed
Types of Mutual Funds for SIP (Fund Categories)
Equity Funds
- Large-Cap Funds: Large cap funds are a type of equity mutual fund that primarily invest a significant portion of their assets in the stocks of large, well-established companies
- Flexi-Cap/Multi-Cap Funds: They are open-ended equity mutual fund schemes that invest in companies across all market capitalizations like large-cap, mid-cap, and small-cap with no restrictions on how much can be invested in each segment
- Mid-Cap Funds: They are a type of mutual fund that primarily invest in equity and equity-related instruments of mid-sized companies, typically those ranked between the 101st and 250th by market capitalization
- Small-Cap Funds: They are mutual funds that invest primarily in the equity and equity-related securities of small-cap companies, which are defined in India as those ranked 251st and below in terms of market capitalization
- Thematic/Sector Funds: They are a type of mutual fund or exchange-traded fund (ETF) that invests in companies across multiple sectors connected by a specific long-term trend or theme
Debt Funds
- Debt Funds: Debt mutual funds are a category of mutual funds that primarily invest in fixed income securities like government and corporate bonds, treasury bills, and money market instruments. They are built to provide stable returns with lower risk compared to equity funds. This makes it ideal for conventional investors who seek regular income
How to Pick the Best SIP Mutual Funds
- Track Record / Returns: Look at 3 year and 5 year annualized returns. The best SIP funds historically have high 3 to 5Y SIP CAGRs with some ranging between 25 to 30%
- Consistency: Prefer funds that have consistently beaten their category averages on a yearly basis
- Fund House & Manager: Large, reputable AMCs like HDFC, Nippon, SBI, ICICI, Axis, etc with stable, experienced fund managers are safer picks
- Expense Ratio: It is an annual fee that mutual fund companies (AMCs) charge to cover the costs of managing and operating a fund. Always choose a lower expense ratio means more wealth compounding
- Fund Size (AUM): AUM stands for Assets Under Management, which is the total market value of all investments a mutual fund or financial institution manages on behalf of its clients. Very small AUM which has lower than <500cr can be risky, whereas large AUM can limit agility. Many good funds are in the ₹5,000 to 50,000+ cr range
- Diversification: The top 10 list below includes a mix of large-cap, flexi/multi-cap, mid/small-cap, and hybrid funds to balance growth and risk. Investors should diversify their investments in 2–3 funds to grow their wealth
Top 10 SIP Mutual Funds to Consider This Year
Below is a category-wise list of top 10 funds in no particular order that experienced investors often use for disciplined SIP investing.
| Fund Name | Approx. 5Y SIP Return | Risk Level |
| HDFC Flexi Cap Fund (Flexi/Multi Cap) | ~24% p.a. | Moderately High |
| Nippon India Large Cap Fund | ~20% p.a. | Moderate |
| Nippon India Small Cap Fund | ~27% p.a. | Very High |
| SBI Large & Mid Cap Fund | ~18–20% p.a. | Moderately High |
| HDFC Mid Cap Opportunities Fund | ~25% p.a. | Very High |
| Axis Focused 25 Fund | ~22% p.a. | High |
| Franklin Build India Fund | ~20% p.a. | High |
| Quant Small Cap Fund | ~30% p.a. | Very High |
| Kotak Hybrid Multi Asset Fund | ~12–15% p.a. | Moderate |
| ICICI Prudential Bluechip Fund | ~18% p.a. | Moderate |
How Much Money Will My Child’s Education Actually Cost in The Future
Accurately, projecting future education costs is crucial. Inflation in education has been very high, roughly 10 to 12% per year. It means education costs double in about 6 to 7 years. For example, a ₹20 lakh engineering degree today could easily become ₹75 lakh in 18 years at just 7% inflation. Fees at private colleges have roughly tripled in 12 years, which is about 11 to 12% p.a. inflation.
When Should I Start Investing in Mutual Funds for My Child’s Education?
Experts universally recommend starting as early as possible. Ideally you should begin when your child is born or very young age, so you benefit from a long compounding horizon. Every additional year of investing reduces how much you must put in monthly.
For example, delaying a 15-year plan by 5 to 10 years can more than double the required monthly SIP.
How Much SIP Should I Invest Every Month for My Child?
There is no one‐size‐fits‐all answer, and it depends on your goal amount, timeline, and expected returns.
Use our Target SIP calculator to plug in your target corpus and horizon.
This tool calculates the monthly investment amount needed to achieve your financial goal within a specified time frame.
It takes into account parameters such as the target amount, investment tenure, expected rate of return, and the frequency of SIPs.
- Target amount: This is your dream number, the total sum you want to reach with your SIP investment
- Timeframe: This is how long you plan to invest through SIPs, or the date by which you want to reach your goal
- Expected return: Be realistic about how much growth you expect from your investment. Don’t put in a super high number as it might not be achievable and could make the calculated amount misleading. By keeping your return expectations reasonable, you’ll get a more accurate and helpful result
How to Use EduFund’s Target SIP Calculator?
Here’s a step-by-step guide for helping you get started:
- Enter the desired target amount you wish to achieve
- Specify the investment tenure in years
- Provide an expected rate of return based on your risk appetite and market conditions
- Click on the “Calculate” button to generate the recommended monthly SIP amount.
The calculator will give you the monthly SIP amount required to reach your financial goal. You can adjust the parameters to explore different scenarios and identify the most suitable investment plan
Are Mutual Funds Safe for My Child’s Future?
Mutual funds carry market risks, but over the long term they have historically outperformed traditional savings. As an investment vehicle they are professionally managed and SEBI-regulated, providing oversight and diversification.
A Balanced or Debt fund will have low volatility, whereas Equity funds carry higher short-term swings. However, long-term goals, studies, and advisers note that equities tend to beat inflation and produce higher real returns.
In practice:
- If you have more than 10 years, equity funds can give high inflation beating growth. This does mean ups and downs, but a Systematic Investment Plan (SIP) cushions volatility by rupee-cost averaging
- For nearer term funds around 5 to 7 years out, consider a hybrid or balanced fund to mix equity with debt, moderating risk
- Very short-term goals which are less than 3 years should be in Debt or Liquid funds for capital protection
Which Type of Mutual Fund Is Best for Child Education SIP?
It depends on your time horizon and risk tolerance:
- Long-term: Equity-oriented funds usually work best to beat inflation. Top picks include flexi-cap or diversified equity or large and multi-cap funds. These funds invest broadly across market caps and sectors, giving higher growth potential
- Medium-term: Consider hybrid or balanced funds as they maintain a mix of equity and debt as they offer a compromise of growth and stability
- Short-term: Allocate debt funds or liquid funds, which invest in bonds and money markets. They preserve capital and earn steadily though lower returns. For very near-term schooling expenses, safety is paramount
A quick guideline from experts:
“Equity mutual funds, especially diversified or flexi-cap funds, are recommended for long-term goals.” financialexpress.com
“For 5–7 years, hybrid funds work well; for under 5 years, use debt funds.” axis.bank.in
What Mistakes Do Parents Make While Investing for Child Education?
Parents often err in several ways when planning for education funds. Common pitfalls include:
- Starting too late: Many assume there’s plenty of time and delay investing. But each year they lost double the burden later. Always start at birth or as early as possible
- Underestimating inflation: Ignoring education inflation leads to small corpus. Always inflate current fees for 15 to 20 years ahead
- Staying too conservative: Locking all money in FDs/PPF or child insurance plans for a 15-year goal is risky and returns usually don’t beat inflation. Overweighting debt severely limits growth
- Not rebalancing: A static portfolio is a mistake. As time passes, your allocation should shift from equity toward debt. Also consider avoiding overconcentration and try to diversify your investments
- No step-up: If your income rises but SIP stays unchanged, you’ll fall short. For example, a ₹20k SIP grows to ₹1cr over 15 years, but with 10% annual top-ups it becomes ₹1.55cr
- Panicking in market swings: Some stop SIPs during a downturn and the opposite of what you should do. Market dips are opportunities to buy cheaper units
- Chasing past returns: Picking funds just because they recently soared or were performing well can backfire. Instead, look at long-term consistency and style
Being aware of these pointers can help you avoid mistakes. Start early, be realistic, stay consistent and adapt your strategy over time
Frequently Asked Questions
How long should I do SIP?
At least 5 to 7 years for equity mutual funds. This time frame allows your investment to grow and align well with long-term goals like a child’s education. A longer SIP duration also helps reduce the impact of market ups and downs.
When should I increase or pause my SIP?
You should increase your SIP amount as your income grows. Avoid stopping SIPs during market falls. Market dips actually help because you buy more units at lower prices. Many experts suggest using market highs to rebalance and market lows to add more.
What is the right SIP amount to start with?
Start with an amount you are comfortable with. Even ₹500 per month is enough to begin your investment journey. What matters most is staying consistent and increasing the amount gradually as your income improves.
Should I invest through SIP or lump sum?
For beginners, SIP is usually the better option because it removes the stress of timing the market. Lump sum investments are suitable when you have surplus funds and a strong long-term view on the market.
How are SIP gains taxed?
SIP investments in equity mutual funds are taxed based on holding period. Units held for more than one year are taxed as long-term capital gains at 10 percent on gains above ₹1 lakh per year. Units held for less than one year are taxed as short-term capital gains at 15 percent. Each SIP installment follows the same tax rules.
Can I invest in multiple SIPs at the same time?
Yes. Many investors split their SIP across two to four mutual funds. A common approach is one large-cap fund for stability, one flexi-cap fund, one mid or small-cap fund for growth, and one hybrid fund for balance. This helps manage risk better.
What happens to my SIP if the market crashes?
A market crash can actually benefit SIP investors. Your monthly investment buys more units at lower prices. When markets recover, these extra units can boost returns. However, only invest money that you can stay invested for the long term without stress.
