As Higher Education expenses are increasing day by day, most parents are looking at long term investing to build enough corpus to fund their Child’s education during Graduation/Post Graduation. School/College education costs have increased by 8-10% annually as per this report. Moreover, many parents are also looking at sending their kids outside of India for higher education, those are normally even more expensive. Additionally, if there are multiple children in a household, separate investments needed for each child.
Vanilla Child Mutual Funds
Certain Mutual Fund AMCs have created certain funds for this purpose and those are mostly called Children Gift/Benefit/Investment plan. Primarily, these funds belong to Aggressive Hybrid Fund category and most of have them have lock-in period of 5 years. Most of these funds hardly beat the indices of Diversified Equity funds.
Since the Fund structure remains same all the time, there is a risk that the Equity Market going down significantly near to the Higher Education start date as there is no option move the funds automatically to non volatile Debt Fund near to the needed timeframe. If such even happens, it would be big disappointment as the corpus would shrink significantly.
Alternate Option
The better way to build such Goal based Investing is to choose some ELSS Mutual Funds through monthly SIP based on the time horizon and move the investments in staggered basis to Debt investment starting 1-2 year before the actual need date. ELSS funds are good choice as they invest minimum of 80% in Equity (stock market) and the returns are not taxable in India. It also has 3 years of lock-in period for every SIP date, which acts as deterrent for withdrawal during some financial emergency and allows the investment to grow.
If the Education fees payments are on yearly basis, those can also be factored in while executing such investment plan.
We can help you in creating such goal based Mutual Fund strategy.
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