Should you invest in mutual funds to create corpus for your child's higher education? | Mint

If you have a young boy or a daughter, it is not a brain to invest for their higher education. Some tend to invest in PPF, while some have a special love for fixed deposits (FDs). Some prefer to invest in the tax -saving instruments such as National Savings Certification (NSC), Kisan Vikas Pattra or Sakanya Samriddhi Yojana (Ssy). However, the more ambitious sides can opt for mutual funds. But is it advisable to invest in mutual funds to create corpus for your child’s higher education? Well, it is definitely, advise experts as long as it is done with proper planning and under the right guidance. Let’s find more about this. “Parents have a huge pressure to build a corpus for their children’s education purposes. Education inflation should be considered at 8 to 10% each year. Equity-among funds can be good options, along with PPF and SSY (especially for girls) to achieve the required corpus for educational purposes,” says Preeti Zende, a Sebis-registered investment adviser and founder of Apna Dhan Financial Services. Mutual funds for higher education should you invest in mutual higher education funds? Higher education needs tend to arise when the child is 18 (for undergraduate degree) or 21 (for master’s degree). This means that the time horizon is long enough to invest in a mutual fund scheme. Thus, one can invest in mutual funds in categories to save for your child’s higher education. What is the ideal debt equity ratio in mutual funds if you save for the child’s higher education? One expert we talked to recommends that the ideal debt equity ratio is 30-70 in favor of equity when the time horizon is 7 years or longer. On the other hand, if Time Horizon is shorter than seven years, one can invest 50-50 in equity and debt. “If the time horizon is long, investors should have a higher assignment to equity,” says Sridharan S., founder of Wealth Ladder Direct. “One can have a good mix of index funds, flexicap and midcap funds in the ratio 40:40 and 20 or 50:35:15 according to your risk capacity,” Zende adds. Equity Mutual Funds can be good options, along with PPF and SSY (especially for girls) to achieve the required corpus for educational purposes. Preeti Zende founder of APNA Dhan Financial Services When education loans are available, why should one invest in mutual funds for children’s education? One must invest in the education of the children, because there must always be an option to fall back. In addition, education loan tends to cause financial discipline among children. If they spend a large amount on their education, they must be responsible enough to recover the costs. “It is recommended to save enough corpus for children’s education. As a parent, we must be prepared for the worst case of economics, in which the child does not get a high paying job right after the degree. But it must be the moral responsibility for the child to repay the money,” Sridharan adds. What are the factors you should consider at the time of calculating the total education costs as the child grows up? It is important to take inflation into account for the number of years before the financial purpose. For example, if the financial goal is ten years away, and inflation increases by 5 percent a year, 5 percent for each year must be taken into account before arriving at the total amount required. “It is extremely important that you consider inflation for the country you intend to go,” Sridharan adds. Apart from mutual funds, what other smart investment can you make? Apart from mutual funds, one can invest in the currency of the destination country, so that the increase in currencies does not increase your calculation. “One might consider investing in the currency of that country you intend to go to,” says Sridharan. Visit here for all updates for personal finance