Children’s education is expensive. The hefty costs of academics in India or abroad can dent a family’s savings. Many parents take education loans to fund their child’s education.
Besides loans, mutual funds are another avenue you can explore to fund your child’s education. A good investment plan with mutual funds can help you achieve the critical life goal of providing your child with the best possible education.
Let’s find out how to choose the right mutual fund to invest in for children’s education.
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Mutual funds schemes to consider
When it comes to mutual funds, the choice is diverse. However, you should choose funds in line with your risk appetite and goal tenure.
Children’s education is a long-term goal (15-18 years) for which planning should ideally begin when the child is young. Equity funds are an ideal choice of investment to fulfil this goal. Here are the top three equity funds which you can consider.
a) Diversified Bluechip Equity Funds:A diversified bluechip equity fund may be ideal for several long-term goals such as children’s education or retirement. This investment scheme invests in the shares of companies leading in their respective sectors, thus allowing you to benefit from a growing economy. The risk element with diversified funds is lower than with schemes focusing on a particular industry. Based on the historical performance of equity schemes, expect a long-term CAGR of around 12% on your investments.
b) Flexicap Equity Funds: As the name suggests, these schemes invest in leading large, mid, and small-cap companies. Investment proportions under such funds can be adjusted across market cap sizes, thus allowing you to earn the best possible returns based on the market situation. This fund has a long-term CAGR of 9% and above.
c) Balanced Advantage Funds: These funds are hybrid mutual funds capable of changing allocation between equity and debt based on the prevailing market conditions. Also known as Dynamic Asset Allocation Funds, they offer the best of both asset classes. Given their historical performance, you can expect a long-term CAGR of 8-12% from this category of schemes.
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Factors to consider when selecting funds
It would help to keep some crucial factors in mind while choosing suitable funds. Let’s look at some important parameters to help you select the right fund.
a) Performance track record: When selecting funds, look for ones with aminimum track record of 5 years. However, a longer track record is even better as it helps investors assume the fund’s expected rate of return and its ability to manoeuvre during past market cycles.
b) Expense ratio: This is a percentage-based fee charged by a fund to its investors to cover administrative and operational costs. The expense ratio of a fund influences its net returns. A low expense ratio can help boost returns by fetching more units in your portfolio. In the long term, the compounding gains on these additional units can significantly increase your returns.
c) Fund manager’s investment style: Fund managers are responsible for a fund’s management and play an important role in its performance. Before choosing a scheme, get to know your fund manager and their investment thought process. You can also refer to the fund house’s factsheets to understand their general commentary on the markets and expectations. Interviews and news portals are other ways to learn more about your fund manager.
Every parent aspires to provide their child with the best of everything, especially education. Investing consistently via a Systematic investment plan (SIP) is an ideal way to create wealth that can cover education costs. As your income goes up each year, consider increasing your investments too. This will help ensure you reach your goal in time while also giving you a head-start for future life goals.
