4 Top Mutual Fund Schemes for Your Child’s Higher Education

Some leading equity and equity-oriented hybrid schemes you can choose in order to build your portfolio in the long term include the following*:

Fund Name	5 Year Returns (%)	10 Year Returns (%)
SBI Focused Equity Fund	20.88	19.00
Reliance Multicap Fund	18.17	17.58
Franklin India Focused Equity Fund	21.75	17.00
ICICI Prudential Bluechip Fund	17.17	16.47

*Returns data is as per closing on 28th September, 2018 and subject to change.

Investing is all about increasing your wealth by making your savings grow over time, often with a specific target expense in mind. One such expense that parents need to plan for as early as possible is funding their child’s higher education. The cost of education in India as well as globally has skyrocketed and there is little chance of this coming down in the coming years. Consider this, the tuition fee per semester for a B.Tech course in IIT Delhi used to be Rs. 21,300 in 2008. In 2018, the same costs Rs. 107,800 for a general category student (Source: IIT Delhi Fee Structure Circular). So just depending on an education loan for funding your child’s future education might not be the best idea.

Fortunately, now there are multiple tools for planning the expenses of your child’s education such as solution-oriented mutual funds and fixed return instruments such as Sukanya Samriddhi Yojana. While not all of them might be able to cover the entire cost of your child’s higher education, they can definitely reduce the burden at a later date.

Solution Oriented Mutual Funds

In case you find the task of creating a portfolio of mutual funds daunting, you can always consider investing in solution-oriented schemes such as child gift plans. The following are key features of these schemes:

• Solution-oriented schemes are equity or debt-oriented hybrid funds that can provide you with a balance between returns and risk. These solution-oriented funds invest in both equity and equity derivatives along with debt and money market instruments to provide this unique balance.
• You no longer have to worry about investing in multiple assets like equity or debt as the fund manager does it on your behalf.
• For best results you should consider staying invested in these scheme well beyond the 5 year lock-in period, especially in case of equity-oriented hybrid investments.

Key examples of these solution-oriented schemes would include:  

Fund Name	5 Year Returns (%)	10 Year Returns (%)
SBI Magnum Children’s Benefit Fund	17.09	11.69
Tata Young Citizens Fund	10.61	10.54
ICICI Prudential Child Care Fund – Gift Plan	18.89	13.88
HDFC Children’s Gift Fund	14.17	17.09

*Returns data is as per closing on 28th September, 2018 and subject to change.

Other Mutual Funds

If you start planning early for your child’s education, plain vanilla equity mutual funds such as diversified schemes and large cap funds can be the ideal option. The following are some key factors to keep in mind when choosing a portfolio of mutual funds to fund your child’s higher education:

• Carefully consider how long you plan to stay invested. At the very least you need to stay
  invested in equity funds for 5 years in order for these investments to work.
• Choosing equity schemes with potentially less volatility such as a large cap or diversified schemes and hybrid schemes instead of a small cap fund might be a good idea. Even though small cap schemes have superior outperformance potential, they are also prone to a higher degree of volatility as compared to large cap or diversified schemes.
• Mutual fund investments can be made flexibly either through SIP (Systematic Investment Plan) or by means of lump sum investments.
• When you are close to the time you need to redeem your investment i.e. at the time of
  funding your child’s higher education, it might be a good idea to redeem your
  equity investments systematically through what is called a Systematic Withdrawal Plan (SWP).

Sukanya Samriddhi Yojana

This Government-backed potentially risk free investment is considered a good solution for conservative investors seeking to fund their girl child’s education. The following are some key facts to consider when investing in this scheme:

• Low risk, government backed investment with tax saving benefits of up to Rs. 1.5 lakhs
  under Section 80C.
• You can invest only if you have a girl child and a maximum of 2 accounts are allowed
  per family.
• Fixed return investment that offers returns of 8.5% (as of 3rd Quarter FY18-19),
  which is higher than almost any other government-backed investment schemes.
• The withdrawal allowed for education expenses is limited to 50% of account balance
  if the child is less than 21 years of age.
• The account matures completely when the girl child is 21 years old or when she gets married after 18 years of age.

Term Deposits

Term deposits such as fixed or recurring deposits have long been preferred investment option for a large proportion of Indians. However the present day rate of return on offer by this option is often unable to beat inflation. The following are key features of term deposits:

• Potentially low risk investment, but relatively low returns on offer (6.5% to 7.5% for major banks).·
• Low levels of liquidity.
• Penalties applicable in case of premature withdrawal.
• Any interest earned in excess of Rs. 10,000 annually is subject to taxation.
• Suitable only for risk-averse investors.

Comparison of 4 top investment to fund your child’s higher education*:

Scheme Name	Expected ROI	Taxation Rules	Limitations
Mutual Funds Portfolio	12 to 15% annualised depending on type of scheme chosen	As per applicable capital gains taxation rules	Market Linked Returns
Solution Oriented Mutual Funds	10 to 12% annualised depending upon scheme chosen	As per applicable capital gains taxation rules	Market Linked Returns
Sukanya Samriddhi Yojana	8.5% (Q3 FY 18-19)	Tax saving under 80C, returns also exempt from tax	Only applicable for girl child
Fixed Deposits	6.5 to 7.5% for major banks	Taxable in case interest earned exceeds Rs. 10,000 annually	Returns are often unable to beat inflation

*The facts and figures are subject to periodic change.

Here is a list of mutual fund schemes for child education which you can consider:

Scheme Name	1 Year Return	3 Year Returns	5 Year Returns
Mirae Asset Emerging Bluechip Fund	18.47%	17.68%	17.55%
Invesco India Growth Opportunities Fund	11.48%	17.56%	12.70%
Kotak Select Focus Fund	12.46%	15.97%	12.70%
Canara Robeco Emerging Equities	8.84%	15.51%	13.56%
ICICI Prudential Bluechip Fund	11.99%	13.75%	9.84%
Principal Emerging Bluechip Fund	6.08%	13.17%	12.33%
SBI Equity Hybrid Fund	14.42%	13%	11.29%
aditya birla sl frontline equity fund	8.01%	12.38%	9.58%
franklin india focused equity fund	9.96%	12.35%	9.79%
HDFC Balanced Fund	8.25%	12.06%	19.79%
ICICI Balanced Fund	10.91%	11.92%	10.59%
Mirae Asset Emerging Bluechip Fund Regular Growth	-2.61%	11.50%	16.83%
icici prudential equity & debt fund	8.50%	11.24%	10.62%
ICICI Pru Child Care Fund (Gift Plan) D	8.45%	10.87%	8.49%
HDFC Small Cap Fund	-10.25%	10.83%	10.26%
L&T Midcap Fund	-1.31%	10.78%	11.48%
Birla Sun Life Balanced 95 Fund	4.81%	8.94%	8.59%
Kotak Standard Multicap Fund Regular Growth	-4.99%	8.92%	12.07%
Franklin India Low Duration Fund	8.46%	8.47%	9%
franklin india low duration fund	8.46%	8.47%	9%
sbi hybrid fund	1.23%	8.26%	10.33%
hdfc mid cap opportunities fund	-0.65%	8.24%	9.60%
Principal Hybrid Equity Fund – Growth	-8.46%	8.11%	9.21%
Franklin India Income Opportunities Fund	5.94%	7.94%	8.73%
Franklin India Short Term Income Plan	5.28%	7.93%	8.63%
HDFC Short Term Debt Fund	9.98%	7.88%	8.43%
HDFC Corporate Debt Opportunities Fund	10.24%	7.73%	8.58%
Aditya Birla Sun Life Short Term Opportunities Fund	9.27%	7.51%	8.72%
absl short term opportunities fund	9.27%	7.51%	8.72%
icici prudential all seasons bond fund	9.73%	7.50%	9.43%
SBI Magnum Multicap Fund Growth	-4.61%	7.48%	11.71%
hdfc hybrid equity fund	-2.85%	7.07%	9.54%
Franklin India Smaller Companies	-3.18%	4.72%	8.59%
UTI Short Term Income Fund	-3.50%	3.09%	5.76%
Birla SL Dynamic Bond Fund	-1.11%	2.49%	6.26%
Tata Young Citizens Fund	-11.58%	2.22%	5.50%
HDFC Children’S Gift Fund	–	–	–
Axis Multicap Fund Regular Growth	-0.09%	–	–
Axis Children’s Gift	–	–	–

(Data as on Dec 22, 2019; Source: Value Research)