How to Make the Most of Mutual Funds for Child Education in India?

Financial planning for all your future expenses is important to ensure that you do not miss out on your goals. The sharp increase in the cost of higher education and professional courses highlights the need to save and invest for funding your child’s education. And the most important aspect of financial planning is to determine how much money you need to accumulate for funding your child’s higher education after taking into account the impact of inflation. You can do this with the help of an education fund calculator. Other important aspects are disciplined spending and investing. And the earlier you start, the faster you will achieve your goal. Mutual funds are ideal investment tools for putting in your hard-earned money and earning good returns to fund your child’s education cost.

Mutual Funds for Education Planning

Mutual funds are ideal instruments for education planning and other long-term goals. These funds are of various types depending on the type of instruments they invest in and the associated level of risk. You can choose a mutual fund scheme to invest in that matches your risk profile and investment goal.

  • Option to Invest in Different Instruments

Early starters can choose equity funds that invest in equity and equity-related securities to create wealth over the long-term. These funds invest in small-cap, mid-cap and large cap stocks depending on their investment goal and risk profile. However, if you wish to invest for medium term, you can choose hybrid funds that invest in both equity and fixed income securities to balance the risk while offering reasonable returns. And, as you reach near your goal, you should switch to debt or fixed income funds so that your returns are not impacted by market changes.

  • SIP Is Beneficial

You can invest in mutual funds through systematic investment plan (SIP) option wherein you commit to invest a specific amount every month or any other interval for a pre-decided duration.  The SIP option not only encourages disciplined spending and investing but also offers you the advantage of rupee cost averaging. Since you are investing in different cycles of the market you buy more units when the markets are lower and lesser when the markets are up and participate in all stages of the markets.  When you invest in a SIP and opt for the growth option wherein the returns on your SIP are reinvested, you benefit from the compounding effect.

  • Choose Funds That Allow you to Modify Investment Portfolio

Several asset management companies offer mutual fund schemes with a specific aim to help parents plan for their child’s education. Many of these funds come with a lock-in period to ensure that you cannot withdraw the money and stay invested for a longer time. Several funds also offer you the option to modify the proportion in which you wish to invest in equity or debt with time or as your income increases. You should regularly review your education funding goal planner keeping in mind the changes in inflation level and the rising costs.  The use of education fund calculator can help you quantify the revised corpus that you need to fund your child’s education. This will help you modify your investments and keep them on track to achieve your goals.

Leave a Reply