Know how the mutual fund will help you in your children education planning

The exorbitant education cost has made it almost impossible for financially unstable families to allow their children to pursue studies in certain professions. To pursue an MBA degree from a reputed college, one has to shell out roughly Rs. 20 lakhs right now. One can easily expect this cost to reach a staggering Rs. 40 lakhs 10 years from now.

How can parents plan for their child’s future education expenses?

As parents, we want to give our children the best type of education available. Like others, we want our children to excel in their professional careers as marketing managers, engineers and for that they must be able to make the most out of the education facilities. To build such a large corpus, parents may need to have an investment plan that allows them to build an education corpus over the long term as it may be almost impossible to accumulate such a large amount for their children’s education goal.

How to save for education goals?

While it is important to have a long term investment plan for building the education corpus, parents also need to know how much exact sum they wish to accumulate. Also, they must know the number of years they have in hand in order to achieve this financial goal. Setting realistic goals is important as only then one may be able to get closer to it through disciplined investing. While setting goals, investors must also consider inflation as it is an important factor that one cannot turn a blind eye to. For example, if you want to build an education corpus of Rs. 50 lakhs for your child’s education who is currently 8 years old, then you may have to start investing Rs. 34 thousand per month to build that corpus. This calculation was made keeping in mind an assumed 10% rate of return on investment. This also means that the later you start, the lesser years you have in hand to build the same corpus and this only leads to a sharp increase in the monthly investment sum.

Where you invest also matters

Conventional investment options offer fixed interest, but investors have now realized that investing in such schemes may not be ideal for their long term goals. That’s because conservative investment avenues have witnessed a slump in interest rates leaving investors with no option but to look for other investment products. Choosing the right asset class is equally important because only then you stand a chance of building a commendable education corpus to fulfill your child’s dream of becoming a doctor or an engineer.

Plan for your child’s education expenses with mutual funds

By investing in market linked schemes like equity mutual funds, investors will not only get an opportunity to generate capital appreciation by exposure to equity, they will also receive professional fund management. Plus, equity schemes invest in a variety of credible stocks with growth potential thus allowing retail investors to mitigate investment risk through diversification and allows them to earn risk-adjusted returns.

An ideal way to gradually build an education corpus for your children’s education plans is to invest in mutual funds via a Systematic Investment Plan. SIP is a simple and effective way to invest small fixed sums periodically in mutual funds. Systematic Investment Plan reduces the investment risk in equity funds by buying more units in the long term through an investment technique referred to as rupee cost averaging. When the NAV of the mutual fund scheme is low investors are able to buy more units through their SIP investments. Similarly, when the NAV rises investors buy fewer units. But this also means that the overall value of their units increases. Through the power of compounding, investors can compound their small SIP sums into a commendable education corpus in the long haul. Do understand that power of compounding will only come into effect if investors continue investing for a longer duration. There are various mutual fund schemes to choose from and depending on their investment objective, risk appetite and investment horizon investors can choose from a variety of schemes available to support their financial goals. Do remember that mutual funds do not guarantee returns and they should not depend on just one asset class to achieve the education corpus.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.