Every parent aspires to provide their children with financial security before adulthood. This aspiration gains even more prominence amid the rapidly rising inflation rate, higher education costs, increased study expenses, and the overall rise in prices in 2026.
To address this situation, many families are now rapidly exploring Systematic Investment Plans (SIPs) to build a sizable, meaningful corpus for their children by the time they turn 18.
To better appreciate the concept of compounding and how starting early can significantly reduce the monthly investment burden, let us consider different investment scenarios based on a child’s age. The assumption here is that the expected rate of return is 12% and the final targeted corpus is ₹1 crore.
Following this planned approach, you can create a meaningful corpus for your child that will help facilitate better education and future growth opportunities.
The concept, hence, is simple: the earlier the parent begins investing, the lower the SIP amount required to potentially help build a meaningful corpus of more than ₹1 crore over 18 years.
Concept, formula and power of compounding
The formula in the above calculation is as follows:
FV=P×(r(1+r)n−1)×(1+r)
Where:
- FV = Future value or target corpus
- P = Monthly SIP investment
- r = Monthly rate of return (Annual return ÷ 12)
- n = Total number of monthly investments
Example:
- Target corpus = ₹1 crore
- Investment period = 18 years
- Total months = 216
Using the formula, the required SIP comes to nearly ₹14,050 per month.
The above example clearly highlights the significance of compounding. This way, a parent who starts investing as soon as the child is born may need to invest much less each month than someone who begins when a child is already 8 or 10 years old.
Still, please note that 12% annual returns are not guaranteed, as SIP investments linked to equity mutual funds are market-dependent and not linear. Actual returns can fluctuate based on market conditions, investment horizon and fund performance.
Given that equity and mutual fund investments can deliver higher returns, it is prudent not to rely on a single investment product. As an investor, you should also have a combination of emergency savings, insurance (both health and term) and diversified investments across different asset classes.
Such an approach can provide better long-term economic stability. You should develop any investment strategy after due diligence and consultation with a certified financial advisor.
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