Mutual fund is the best investment option when it comes to earning high returns over long periods. It is an ideal investment instrument for meeting long-term financial objectives like financing of children’s higher education.
Keeping this in mind, one should have a proper plan in place for their child’s higher education – such as the target amount to be accumulated, the monthly amount to be saved to achieve the target, etc. To beat inflation, especially education inflation, one could invest in equity funds. Being a market-linked instrument equity funds offer the best returns over the long term.
Benefits of Financing Child Education With Mutual Funds
- High Returns: Mutual funds especially equity funds provide the highest return among all the investment instruments over the long period. Equity funds are capable of providing returns as high as 13%-15% if held for periods as long as 12-15 years.
- Low-Investment Requirement: An investment in a mutual fund scheme can be initiated with an amount as low as Rs. 5000 in case of a lump sum investment/Rs.500 in case of a systematic investment plan (SIP).
For instance, if you invest Rs. 5,000 monthly in a mutual fund scheme for a period of 15 years, you will have nearly Rs. 34 lakh at the time of maturity (expecting an annual rate of return of 15% without adjusting for inflation).
- SIP Option: Mutual fund is the only investment product which comes with an option for systematic investment plan (SIP). SIP is a mode of investment which allows you to invest small amounts at periodic intervals to reap in the benefit of power of compounding.
Power of Compounding helps you to earn returns not only on your principal investment but also on the returns generated from that investment, thereby increasing your wealth. You can read more about it here.
- Diversified Portfolio: A mutual fund scheme holds a host of investments spread across market capitalisations and industries in its portfolio. By investing in a mutual fund scheme, you get the access to this diversified portfolio that too at a very nominal cost (that is the investment amount). Diversified portfolio helps in earning high returns as well as in distributing the market risk.
- Professional Management of Funds: A mutual fund scheme is managed by a team of professionals who are led by an experienced fund manager. The professional management of funds helps a mutual fund scheme in staying relevant in the times of changing market and economic conditions.
Best Mutual Funds to Fund Your Child’s Higher Education
Here’s the list of best mutual funds to finance your child’s higher education. Besides the returns of the best schemes, the below table also tells you what would have been the value of your investment on April 30, 2019 if you would had invested Rs. 10,000 via a SIP in them 5 years ago on (May 30, 2014).
|Fund Name||3 Year Return||5 Year Return||SIP Investment Value|
|SBI Small Cap Fund||15.97%||26.19%||Rs. 9,10,953|
|Reliance Small Cap Fund||15.95%||23.58%||Rs. 8,56,242|
|Franklin Build India Fund||14.38%||21.29%||Rs. 8,74,112|
|Kotak Emerging Equity Scheme||14.38%||21.29%||Rs. 8,29,767|
|Axis Long Term Equity Fund||14.29%||18.16%||Rs. 8,57,373|
1. SBI Small Cap Fund
SBI Small Cap Fund is a well-performing small cap fund and an ideal investment for meeting long-term financial objectives such as financing higher education of children. Being a small cap fund, it has the potential of generating returns relatively superior than schemes which invest primarily in large or mid caps by taking a relatively higher level of risk.
2. Reliance Small Cap Fund
Reliance Small Cap Fund is a nearly decade-old fund which was launched in September, 2010. The scheme has demonstrated an impressive performance track record. The scheme follows a balanced approach when it comes to sector-wise allocation of its funds as it has given nearly equal weightage to consumption-driven and defensive sectors in its portfolio. It features a moderately high risk quotient. However, if kept for a relatively longer duration, the risk quotient does not significantly affect the investment value.
3. Franklin Build India Fund
Franklin Build India Fund is a sectoral fund which invests in the companies belonging to the infrastructure domain. Since the scheme invests in only one sector it is capable of generating concentrated and high returns bearing a high risk.
4. Kotak Emerging Equity Scheme
Kotak Emerging Equity Scheme is a mid cap fund and is ideal for financing your children’s higher education; it is capable of generating high returns over long periods ranging from 10 years to 15 years. The scheme is bullish on cyclical sectors and has invested more than 50% of its assets in them.
5. Axis Long Term Equity Fund
Axis Long Term Equity Fund is more than a decade old. Along with providing its investors with good returns, the scheme also provides them with tax benefits. It qualifies for a tax deduction of Rs. 1.5 lakh under section 80C of the Income Tax Act.
It is advisable to start planning for your child’s higher education right from the time he/she is born because the cost of education increases year after year.