Reasons to Invest in Mutual Funds for Child Education Planning

 

Over the past few years, education expenses have been growing at a higher rate in India. The cost of government engineering courses is 9 to 10 lakhs  and in top private colleges, it is 15-20 lakhs. In the coming years, the cost may rise between 25 to 35 lakhs if we apply an inflation rate of 10%. 

These education expenses can quickly drain all your savings. In order to save money for your children’s education, most of you are blindly putting your hard earned money into several child policies that are basically insurance policies, bank fixed deposits, physical gold without knowing that these options would provide poor returns that do not even beat the inflation. 

Estimate the Cost of Education

Don’t worry, it is not that difficult, proper financial planning can help you achieve your future goals. One of the most important aspects of financial planning is to determine the amount of money you need to save for your children’s education. Once you are aware of the amount, start investing in the best investment plans in order to meet your financial goals. 

Investment options for your Child’s Higher Education

There are various investment options available in the market one can go for-

  • Mutual Funds
  • Saving Schemes
  • Term Deposits

 

Mutual funds are considered as one of the best investment plans if you wish to save a large amount of money for your child’s future needs. Equity investments are termed as the best for creating wealth in the long run.  Calculate the estimated return on the invested capital by using a lump sum calculator and make the best suited plan as per your financial needs. It is always advisable to invest in equity through mutual funds because of its volatile nature and requires special knowledge. It is always better to start investing as early as possible to gain higher returns in the long run. Let’s find out some reasons why investing in mutual funds can be a good deal.

Why to invest in Mutual Funds for Child Education Planning?

  1. SIPs– Mutual funds via SIP is best suggested by experts as it indulges disciplined savings and protects you from market fluctuations. Also, the power of compounding has a multiplier effect on your money. SIPs are the most convenient investment option available in the market as there is no need for manual payment of installment, the amount will get auto-debited from the account. 
  2. Mutual funds are Transparent– Mutual funds get you all the essential information. You can check where and how your money is being used as an investment. The investment strategy is declared publicly and the net-asset value  is updated online daily. You will be able to check the performance of your investment.
  3. Accepts Small investments– Mutual Fund Systematic Investment Plans (SIP)allows you to make investments of rs 500 every month to avoid any financial burden. This small amount would not affect your monthly expenses and gradually you can increase the installment amount as per your financial plans. Small and regular investments help you achieve your long term goals. Also, compounding and cost averaging both works together to help your money grow in the long run.
  4. Managed by Professionals-Your portfolios are professionally managed by experts for which they take very less amount. These professionals with years of experience help you in effective assets allocation to handle downside and upside of your wealth.
  5. Diversified- Mutual fund allows you to invest in other assets & commodities such as bonds, cash and gold. Through this, you will be able to reduce the risks of investing in one stock and enjoy higher potential returns.

Savings are good but to ensure success of your financial goals,we need to invest in the right asset. There are several traditional saving options available such as RD and Insurance policies. The average rate of interest over the last 10 years is just 7.5% and the interest amount is fully taxable for investors who come in the highest tax bracket. If we go with insurance policies, the rate of return is just 6 %. According to the experts,equity is considered as the best performing asset for long term investment.

It feels bad when taxes eat a substantial part of returns on your investment. Therefore mutual funds allow investors to enjoy tax friendly investments. Long term capital gains of upto 1 lakh rupees per year is completely tax free. If your amount exceeds 1 lakh, you will be charged only 10% tax.

Best Child Plan Mutual Fund

The investment strategy you are going with should be based on the age of your child and future requirement. Suppose your child age falls between 11-15 years so your investment strategy should include the most important step of his career after 10th class. You need a great investment scheme to beat the rising inflation rate and create a corpus for your child’s future goals.There are several child investment plans one can invest in to gain higher returns in the long run. Below given list shows some of the best mutual funds schemes for your child’s bright future. Go through the data to analyze in terms of returns, rank and performance of the funds.

Funds Rank AUM(in cr) 1 year 3 year 5 year
ICICI Pru Child Care Fund (Gift Plan) D 3 28.9 3.9 10.9 17.1
HDFC Children Gift  121.19 0.7 12.4 17.2
Tata Young Citizens Fund 5 3.22 -7.9 5.9 11.1

 

Giving the best quality education to his children is every parent’s dream. To fulfill this dream, mutual funds are a good option if you want to achieve this crucial goal. Mutual funds allow you to invest through various options like debt funds, equity funds, and income funds that help you to decide the best investment scheme. Systematic Investment Plan is an ideal option if you want to invest in your child’s education for a longer duration. Go for professionally managed mutual funds to enjoy higher returns in the long and that too with a very less installment amount with full convenience.