Every parent wants to give a quality education to their children. However, nowadays, the cost of higher education continues to increase. Be it education in India or abroad, so many expenses are there. Managing the stress of education funding depends on early planning and saving. Amongst the ways to grow your investments, mutual funds for child are one of the best ways. Mutual funds are a systematic & flexible approach to wealth creation and are one of the best to ensure your child’s secure future. This article discusses how you can optimally invest in mutual funds for your child’s higher education.
What Are Mutual Funds?
A Mutual Fund is a money supply that a professional Fund Manager manages. A trust pools money from various investors who share a similar investment objective and invests the same in equities, bonds, money market instruments, and other securities. The resultant income or gains from that joint investment are distributed proportionately between all the investors after deducting relevant expenses and levies by computing a scheme’s “Net Asset Value” or NAV. In simpler terms, a Mutual Fund constitutes a fund many investors collect. A mutual fund for child can be specifically chosen to achieve long-term education goals and to ensure steady growth over time.
Also Read: Types of Mutual Funds Explained | How to Choose the Right Mutual Fund for Your Goals
Types of Mutual Funds
| Mutual Fund Type | Description | Risk Level | Best For |
| Equity Mutual Funds | Invest in stocks for high growth potential. | High | Long-term wealth creation |
| Fixed Income Funds | Invest in bonds and debt instruments for stability. | Low to Medium | Steady income and capital protection |
| Asset Allocation Funds | Diversify across stocks, bonds, and other assets. | Medium | Balanced growth and risk management |
| Index Funds | Track market indices, offering passive investing. | Medium | Low-cost, long-term investment |
| Target Date Funds | Adjust asset allocation based on a future goal. | Varies | Hands-free investing for education goals |
| Money Market Funds | Invest in short-term debt for liquidity and stability. | Low | Short-term savings with minimal risk |
| Commodity Funds | Invest in physical resources like gold or oil. | Medium to High | Protection against rising prices and variety in investments. |
| ESG Funds | Focus on sustainable and ethical investing. | Medium | Socially responsible investors |
Why Choose Mutual Funds for Education Planning?
Mutual funds for kids provide an accessible and effective investment option. Here’s why they make a great choice:
Diversification
To independently diversify your portfolio, you need to know the markets, have a budget, and have time to manage assets actively. Mutual funds give you access to diversification benefits in the form of a single investment. Mutual funds invest in a combination of different assets, like stocks, bonds, gold, commodities, and money market instruments.
Professionally Managed
Many new investors avoid the equity market due to their ignorance and incompetence. You can easily solve this problem by learning to use mutual funds for your child’s education in India. One advantage of mutual funds is the professional fund management.
Transparent
Mutual fund investments provide 100% transparency to the investor. The best part is that you can track each investment made on your folio number, check fund performance, and check your returns. The mutual fund schemes’ brochure clearly states their investment objective and strategy, enabling you to select those funds that best suit your investment objective.
Allow small investments
Almost all middle-class parents have this thing in mind about investing in market-linked products for their children unnecessarily, simply because these options require a sizable amount of investment. Mutual funds, however, let you start small with nominal investment amounts. You can invest small and regular amounts through systematic investment plans or SIPs to meet the long-term objective of supporting your child’s education.
How to Use Mutual Funds for Education
Know how much does education cost
Calculate how much your child’s impending higher education is estimated to cost before investing. Consider:
- Tuition fees
- These include your accommodation and daily living costs
- Inflation (usually 6-8% p.a)
- Other expenses, such as books, travel, and technology
For instance, if a college education costs ₹10 lakh today, in 15 years, it would amount to about ₹24-25 lakh due to inflation.
Also Read: How to Apply for Education Loan in India | Sukanya Samriddhi Yojana Scheme Calculator
Define Your Investment Objective
Once you have the target amount in mind, this can help you set a clear investment goal. You can use an SIP (Systematic Investment Plan) calculator to tell you how much you must invest each month.
For example:
If you target ₹25 lakhs in 15 years with an annualized return of 12%, an SIP of ₹5,000 per month will be enough.
Choose the Right Mutual Fund
Examples of mutual funds include equity funds, debt funds, and hybrid funds. Equity funds invest in equity and equity-related securities. They benefit most from volatility, especially highly rated ones. Some debt funds are relatively low-risk by investing in fixed-income securities. As the name suggests, hybrid funds combine equity and debt and carry a relatively moderate risk.
Consider an SIP investment
SIP (Systematic Investment Plan) allows you to invest in small, regular installments over time instead of one big amount. In this manner, the investment burden is reduced. Besides, SIPs allow for rupee cost averaging, wherein you acquire more units when the market is down and fewer units when it is up.
Be Consistent
Keep your eyes on the end goal and invest regularly in mutual funds. A child education plan calculator can give you a good estimate of how much money you will need to invest and for how long.
Conclusion
Investing in mutual funds for child is a smart and effective way to build a solid financial foundation. Investing in your child’s future is a significant long-term goal many parents are keen to achieve. You can give your kids several gifts, but remember that education is one of the best, and mutual funds make it possible systematically and profitably. Don’t wait another day. Take the first step towards your little one’s bright future today!
FAQs
1. How much should we invest in mutual funds for children’s education?
A. The amount depends on your child’s projected education costs, inflation, and years of investment. To know how much you need to invest every month, you can use an SIP to calculate based on the target amount.
2. Is it possible to redeem mutual funds before maturity for child education?
A. While liquidity is inherent in mutual funds, early withdrawal might impact your long-term goals. Certain funds impose exit fees, and early withdrawal can result in lower returns.
3. Is SIP a good option for investing in mutual funds for child education?
A. SIPs are a systematic and disciplined investment strategy that takes advantage of the rupee cost-averaging advantage. They reduce the risk of market volatility and increasingly build wealth over time.
Hello there, my name is Phulutu, and I am the Head Content Developer at Nivesh Karlo. I have 13 years of experience working in fintech companies. I have worked as a freelance writer at Policybazaar, Paytm Money, Investopedia, and others. I love writing about personal finance, investments, mutual funds, and stocks. All the articles I write are based on thorough research and analysis. However, it is highly recommended to note that neither Nivesh Karlo nor I recommend any investment without proper research and read all the documents carefully.
