Rather than making mutual fund investments on an ad-hoc basis, one must put a plan in place to meet the child’s education needs. If you are wondering what is a mutual fund, it is basically an investment vehicle that invests in various securities such as stocks, bonds, money market instruments, and other assets.
The cost of education in India is increasing at a reckless pace. From kindergarten to primary to secondary to higher education, parents are increasingly finding it challenging to meet the mounting fee structure and other costs associated with education. Educational costs are constantly inflating at an above-normal rate, and the returns on your mutual funds for child education fund need to outpace this inflation.
The good news is that most of the parentstend to manage and primary and secondary education costs from our salaries or regular income. However, when it comes to higher education, the situation worsens as the demand has increased and so has the cut-off required for worthy quality state-funded institutions. Many parents may even prefer education in private colleges and universities, but it comes at a substantially higher cost. You can profit from being proactive in planning this extravagant spend beforehand.
Calculate backwards while planning for the investment amount required to invest in mutual funds. For a private college in India, the college fee today could be anywhere between Rs8-15 lakhs, or even more for the entire course. A similar amount is required for post-graduation which can be up to Rs 25 lakhs or so. After accounting for a minimum 12% inflation in education cost annually, it’s an expense of around Rs 14 lakhs and above. This basically means that you need a sum upwards of Rs 4.5 lakhs each year for 3 years to fund the higher education of your child.
Wondering how to achieve this amount? Start an SIP (Systematic Investment Plan) in equity funds. Under an SIP investment, an investor is required to invest a specific amount every month regularly. SIPs enjoy the benefit of power of compounding that would aid to achieve the target amount. As soon as you reach closer to achieving your goal amount, move the corpus to a debt fund gradually for the safety of your capital. Remember, the key variable in this strategy is the amount of time you lend to your mutual fund investments. Hence, start early to benefit from compounding and keep it regular. This way, you wouldn’t feel the pinch of escalating education costs.
A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager. It is his/her job to invest the corpus in different securities such as bonds, stocks, gold and other assets and seek to provide potential returns. The gains (or losses) on the investment are shared collectively by the investors in proportion to their contribution to the fund.
Investing in mutual funds is one of the simplest ways to achieve your financial goals on time. But before you invest, take an adequate amount of time to go through the different fund options. Don’t invest in a fund because your colleague or friend has invested in it. Identify your goals and invest accordingly.
There are several types of mutual funds like debt funds, equity funds, liquid funds, etc.offered to investors aimed to best suit their portfolio. Evaluate your goals, investment horizon and risk profile carefully and invest in mutual funds online. Happy investing!