personal finance

How to fund your child’s education through mutual funds?


Children’s higher education is always on the top of financial goals. Thankfully, most Indians understand that the higher education is going to cost a lot in the coming years. Most experts believe that education inflation is on the higher double-digit. So, it makes immense sense to plan for it. How do you do it.

Simple. You just pick a nice round figure you like, right? How about Rs 50 lakh? Or Rs 1 crore? Well, this is a sure way to failure. Always try to pick a realistic target for your future financial goals. Here is the easy way out.

First, find out how much the course costs now. Next, find out the inflation number. Just inflate the course fee for the number of years and you have your target corpus. In some cases, you may not be in a position to find out the course fee because you are not sure about your kid’s preferences. In such instances, choose a course that you think she is going to choose.

Let us work with the numbers to get more clarity. For example, a course cost around Rs 10 lakh now. Assuming an inflation of 8 per cent, the course would cost around Rs 46.6 lakh after 20 years.

The next step is to find out how much you need to invest every month to achieve your target corpus. Assuming an average return of around 12 per cent on your equity mutual fund investments, you may need to invest around Rs 4,665 every month to create a target corpus of Rs 46.6 lakh after 20 years.

If you do not have the risk appetite, you should opt for debt mutual funds or bank deposits. In that case, you may have to save more every month as these investments may not fetch you double-digit returns.

Also, it is always better to keep a shorter tenure than actual time to achieve your goals. This is to make sure that you have enough time to transfer your money from an equity scheme to a debt scheme. For example, instead of 20 years, you can have a 15-year horizon. This will help you to safely transfer your target corpus accumulated in an equity scheme to a safer avenue like debt mutual funds or bank deposit.





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