Every parent in the world aims to safeguard the financial future of their children. They dream of watching their kids achieve their educational aspirations and careers. Mutual fund investments offer one of the most flexible and effective ways of securing an educational corpus for your child—one that effectively beats the rising inflation rates. By saving a set sum every month through MF SIPs, parents can build a sizable corpus for their children that covers their graduation and post-graduation expenses.
 

This guide on how to use mutual funds for your child’s education in India highlights why mutual fund investments are ideal for children’s education and how they can be leveraged to secure your child’s future requirements.

Most middle-class parents have high aspirations for their children’s future. From enrolling them into premier colleges to financing vocational courses, they strive relentlessly to secure the best educational opportunities for their children. However, the rising cost of education has become a significant hurdle to such high aspirations. In recent years, the cost of education in India has skyrocketed. While inflation has hovered around 5%-5.5%, education costs have risen by 11%-12%.
 

This rapid rise in education expenses makes it crucial for parents to plan ahead to secure their children’s future. Parents need to have a well-designed savings and investment plan in place to help their kids pursue their dreams without feeling limited by monetary constraints. Investing in mutual funds is one of the best ways of building a secured financial future for your child. As tuition fees and related expenses soar, parents must learn how to use mutual funds for their child’s education in India to alleviate some of this financial stress. 

As a parent, you can save up for your child’s educational expenses in a number of ways. However, considering the rate of inflation, savings alone are not enough. Investing your saved funds in the right assets can make a significant difference to your accumulated corpus value. For instance, over the last 10 years, traditional saving instruments like fixed deposits have offered an average return of around 7.5% p.a. In the same period, equity mutual fund schemes like the Axis Bluechip Fund have offered returns of 14.61%. Therefore, mutual funds are the most practical investment instrument available to parents seeking to build a sizable corpus for their child’s education.
 

But before you learn how to use mutual funds for your child’s education in India, it’s important to identify the corpus value required. In simple words, you need to determine how much you must save and invest to build a sufficient corpus for your child’s educational goals. Determining an inflation-adjusted corpus is the backbone of sound education planning. Once the goal is identified, you will know how much to save and invest to achieve this goal.
 

For instance, let’s say your child’s higher education is 10 years away, and you wish to create a corpus of Rs. 80 lakhs to sufficiently cover all related expenses. To do so, you will need to invest around Rs. 40,000 per month in mutual fund SIPs, assuming an annualised return rate of 10%. Also, remember that saving for your child’s education is a long-term goal. Your monthly contributions will be lower if you have a longer investment horizon. However, if you have to save Rs. 80 lakhs in the next 5 years, you will have to save and invest around Rs. 1.10 lakhs every month. Therefore, starting early is the key to a well-rounded education plan.

Managing the escalating cost of education with mutual fund investments is a prudent choice. To start your investment, you need to first set a clear, measurable, and time-bound educational goal. For instance, your goal may be to secure a corpus of Rs. 70 lakhs over the next 10 years for your child’s graduation and post-graduation costs. As mentioned earlier, remember to set the corpus goal after factoring in inflation. Setting a clear goal helps settle funds that best align with your objectives.
 

Next, you can invest in regular mutual fund schemes or opt for children’s mutual funds. Children’s mutual fund schemes are specialised MF schemes tailored to help parents and guardians accumulate a long-term corpus for their children. Depending on your target corpus value, you can invest small amounts via monthly SIPs to build a corpus over time. You can choose from equity, debt, and hybrid funds, comparing fund performance, returns, and expense ratios.
 

If your child’s educational expenses are at least 7-8 years away, you can adopt an aggressive approach with equity MFs. However, as you inch closer to the goal, you can switch to debt funds to reduce the impact of market volatility on your portfolio. Additionally, you should carefully review the performance of your mutual fund investments periodically and adjust your portfolio if needed to keep pace with market changes. 

If you are still wondering why mutual funds are ideal for your child’s educational needs, here’s a list of advantages to help convince you:
 

Diversification

Independently diversifying your portfolio requires sufficient market knowledge, a budget for investing in different assets, and time for active management. Mutual funds allow you to tap into diversification benefits through a single investment. Mutual funds invest in a diversified portfolio of assets, including stocks, bonds, gold, commodities, and money market instruments. By investing in various asset classes across sectors and industries, mutual funds lower the investment risk of investing in one single stock or industry. In short, mutual funds help you diversify your investment to optimise risk management and return potential. Since different asset classes react differently to market volatility, even if one asset class underperforms, the impact on your child’s education fund remains minimal.
 

Professionally managed

Many investors stay away from the equity market due to their lack of knowledge and expertise. By learning how to use mutual funds for your child’s education in India, you can easily tackle this issue. Mutual funds come with the benefit of professional fund management. Expert fund managers leverage their experience and market knowledge to pick assets and allocate funds to generate maximum return for investors while minimising the risk exposure of the fund.

Transparent

Mutual fund investments offer 100% transparency to the investor. As an investor, you can easily track every investment made with your folio number, review fund performance, and monitor returns. The prospectus of mutual fund schemes clearly outlines their investment objective and strategy so that you can pick funds that best align with your own investment objective. The NAV (net asset value) of the fund is also updated daily to help you track returns from the fund. Moreover, with all mutual fund scheme-related data available on distributor websites, you can even compare mutual funds before investing.

Allow small investments

Middle-class parents often shy away from making market-linked investments for their kids, assuming the need for sizable investment amounts. However, mutual funds allow you to start small with nominal investment amounts. You can make small and regular deposits through systematic investment plans or SIPs to attain the long-term goal of funding your child’s education. For most schemes, the minimum monthly SIP amount ranges from Rs. 100 to Rs. 500. Your nominal monthly investments grow with the power of compounding and rupee-cost averaging over a long investment tenure to build a sizable education corpus over time. 

Market-linked investments, especially equity investments, offer the best way to beat inflationary pressures. However, choosing individual equity stocks requires knowledge and expertise, which most parents may not possess. Investing in equities through mutual funds helps you gain equity exposure while minimising the risk of individual stock selection. In short, understanding how to use mutual funds for your child’s education in India helps you build a corpus even without thorough stock market knowledge.
 

Mutual funds are a highly customisable investment option, making them an ideal choice for education planning. As a parent, you can decide on the targeted corpus value, how much you wish to contribute, how long you wish to stay invested, and your mode of contribution. You can estimate your corpus under varying tenures and interest rate assumptions using the mutual fund calculator tool available on the Bajaj Finserv Platform.
 

While you can contribute a lump sum in case of a windfall gain, SIPs or systematic investment plans are the most suitable options. Setting aside a fixed sum of money every month for your child’s future helps foster a disciplined savings and investment approach. This investment amount gets auto-debited from your linked bank account on a specific monthly date without requiring manual intervention. SIPs help your corpus grow with the power of compounding, where the principal and interest both earn returns. Your child’s education corpus also grows under the rupee-cost averaging mechanism, where you buy more units of a fund when prices are low and less when prices are high, averaging out the total investment cost over time. Therefore, starting early is the key to building a sizable corpus by the time your child reaches maturity. For instance, if you invest Rs. 30,000 every month for 10 years, you can accumulate a corpus of Rs. 65 lakhs, assuming a return rate of 11%.   
 

Additionally, as a parent, you can choose from a range of mutual fund types to pick the ones that best match your investment requirements and risk appetite. For instance, if your child is still in primary school and higher studies are a decade away, you can invest in equity mutual funds. Even within equity MFs, you can choose from small-cap, mid-cap, large-cap, flexi-cap, and multi-cap funds, depending on your risk appetite. However, if your child is just 5 years away from higher education, you can opt for a mix of equity and fixed-income debt MFs to balance risk and return.

Funding their children’s higher education expenses is one of the chief financial goals for every parent. Mutual fund investments are a prudent choice to manage the rising costs of higher education. Mutual funds offer inflation-beating returns, helping parents accumulate a sufficient corpus to fund their child’s future educational aspirations. Parents can start contributing early towards this goal with SIPs to consistently grow the corpus under the power of compounding.
 

Now that you know how to use mutual funds for your child’s education in India and abroad, you should get started with the Bajaj Finserv Mutual Fund Platform. On this smart platform, you can compare 1000+ schemes, review performance, past returns, expense ratios, and more to make an informed choice. You can also start SIP investments with a nominal sum to get a head start on securing your child’s financial future.