Which mutual funds to choose for your child’s education plan?
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Which mutual funds to choose for your child’s education plan?

Education costs in India are escalating by the day. Even school education has not been spared from the ever-inflating education costs. The National Sample Survey Office has released a report, according to which, the cost of education in India has risen by a mind-boggling 175% and has been on the rise for ten years straight now. At the same time, the costs of technical or professional education have also been on the rise, a whopping 96% to be precise.

Rising costs of higher education in India

Education is a fundamental right, not to mention, a necessity for survival. Considering the rapid rate at which costs are increasing, aspirants will now have to dole out more than they used to before if they want to secure a seat in their desired college and their desired course. For example, in 2018, the students had to pay 19.5 lakhs to secure a seat for a two-year course at IIM Ahmedabad. The fee has increased by 353% as compared to what it was ten years ago.

The situation is not limited to higher education or post-graduate education alone. This kind of thing persists even at the undergraduate level. The fee structure of the IITs has risen to Rs. 2 lakh per year from the standard Rs. 90,000 per year. And to make matters worse, this is just the tuition fees. There are several other costs the student incurs besides this. So, based on all these facts, the tuition fee alone, of your child’s undergraduate course will increase to a monstrous 42 lakhs by 2025.

What this basically means is that, suppose you now have a child who’s just a year old, the fee would have increased by that amount once he or she must be sent off to college. So, there is a need to save up as much as you can, so that you will have enough to pay for your son or daughter’s college education.

The basics of planning for your child’s future

Your child needs a better tomorrow. With that said, you will need to plan your investments, savings, and insurances accordingly. Most people don’t make an informed choice regarding this issue. So, they end up with a lot of shortcomings when it comes to paying for their children’s college. Moreover, because of these shortcomings, the children are also at a disadvantage as they will not be able to get the college or course of their choice, and hence, may ruin their careers, not to mention, their reputation.

While most people invest in child insurance plans, what they don’t know is that, although there are a lot of risks involved, mutual funds are a better option here, and that they are missing out on all the benefits, not to mention, lots of income that is generated by investing in mutual funds. Of course, there are a lot of risks involved. But nonetheless, mutual funds surely give you more returns than your average insurance plans. So, let’s look at how you can choose best mutual funds to invest in India so that your child has a healthier future.

Securing a sizeable corpus for your investment

Education costs are no doubt on the rise. However, as far as Indians are considered, education is not limited to India alone. Many Indians today have the passion and desire to study in a foreign country. The cost of higher education in these countries are naturally higher. Moreover, with the value of the Rupee slumping, costs are bound to escalate even more. Therefore, there is a need to have a sizeable corpus. That is one which can be scaled up or down, according to the requirements. Also, having that extra buck always helps. And you need to do this, not right when your child is about to step into college, but rather, years or even a decade in advance. So, here’s what you need to do.

Step 1: Knowing how much you need

This is the first step when it comes to securing a sizeable corpus. But this task is next to impossible, let alone, challenging. This is because you may not know exactly by how much the costs would increase. However, you can be prepared for what is about to come for you. That is, you will need to secure as many funds as you can so that it will make up for a large part of the amount required, if not all of it.

This depends on the current age of your child, as it determines exactly how many years is left before your child can pursue his or her college education. So, this becomes one of the determining factors for education cost escalation. Based on this data, you can at least estimate how much you are going to need.

Step 2: Knowing where to invest

Once you have done the estimation of how much you are going to need, it is now time to start making the investments. There are many avenues for this purpose. But not all of them have the same returns or even higher returns. However, some of the best options you can consider include mutual funds, endowment child plans, and public provident funds. Let us now see each of them in detail.

  • Mutual Funds

Paying for your child’s college education requires you to save on a long-term basis. Therefore, mutual funds may be the best option you have. However, you need to invest in those kinds of mutual funds which rely heavily on equity as those are the kinds of funds you get more returns from, overall. Moreover, they also help you to overcome any short-term downturns in the market. And then you also have the option of investing in moderate term SIPs such as those that last for 5 to 7 years. You will then be able to reinvest the returns in equity shares. So, in this way, you will be able to generate a huge amount of income over a period.

  • Endowment Child Plans

Endowment Child plans work both as an investment option as well as insurance. These are specifically designed to secure your child’s future. Not only are they an investment option with good returns, but they also provide the child with financial support in case of the parents’ death. Such insurance plans don’t secure the child, but rather secure the parent who needs the means to provide for the child.

  • Public Provident Fund

Education and retirement plans should never come together. So, keep your personal provident funds separated from your child’s education funds. One option is for you to have two provident fund accounts instead of one.

Step 3: Diversifying your investments

Don’t just go for one investment. When securing your child’s future, you need to have invested in multiple places and multiple investment opportunities. Although many may be fine with just one investment, it is always safer to have multiple investments in place, in case the said investment fails to give good returns.

So, if you want your child to have his or her future secured, use any of the investment options stated above.

Using mutual fund to secure your child’s future

Best SIPs for your child’s education

SIPs or Systematic Investment Plans are one of the best options out there, which parents can use, to secure their children’s future. In the long-run, mutual fund SIPs are good investment plans to have in your portfolio. These help you build a decent corpus over a time, and can help you with funding when you need it the most. So, here are some of the best SIPs for your child’s education.

  • Aditya Birla Sunlife Equity Fund

With an AUM over 8600 crores, the fund had a stellar performance in the past and is a great option to consider for parents, for their child’s education. The funds yearly return is around 14 percent which is close to the benchmark indices. Also, the amount invested can be as small as Rs. 1,000.

  • Mirae Asset Emerging Blue-Chip Fund

The investment starts from Rs. 5000, and a monthly sum of Rs. 1000 in the form of SIPs thereafter. The fund has a return of close to 17 percent annual average in three years. The one-year return is also deemed to be good, which is around 19 percent or so. Also, the fund draws a one percent exit load if it is not redeemed within a year.

  • Reliance Top-200 Fund

The Reliance Top-200 Fund comes with a NAV of Rs. 31.69 in the growth plan, and around Rs. 16 in the dividend plan. With the fund generating around 18 percent return last year, it has an overall five-year return of 17.16 percent.

  • Canara Robeco Emerging equities

This is a mid-cap fund and you can invest sums as little as Rs. 1,000. Returns of the last three years have been around 15 percent average annually. However, the average annual return of the fund since its inception is close to 19 percent.

  • ICICI Prudential Balanced Fund

The minimum sum you can invest in this fund is Rs. 5,000 and a sum of Rs. 1000 in the Systematic Investment Plan thereafter. The fund has a three-year return close to 10 percent annual average, not to mention, the annual average for one year is close to 12 percent. Also, the fund draws in an exit load of about one percent if you don’t close it within a year or so.

Everybody needs to secure a good future for their children. But those who start early, reap big benefits in the long run. Investments are key to lessening your financial burdens. So, try to understand how mutual funds work so that you can invest in them and secure the best possible future, not just for your family and children, but for yourself too.