Mutual Funds for Child: If you’re a parent, investing for your child’s future—particularly their higher education—is not just wise, it’s essential. With education inflation rising by 8–10% annually, creating a solid corpus early on has become more critical than ever. While traditional savings instruments like PPF, FDs, NSC, and Sukanya Samriddhi Yojana (SSY) are common choices, financial experts increasingly recommend mutual funds for child’s higher education due to their potential for wealth creation over the long term.
Mutual Funds: A Smart Path to Long-Term Educational Goals
“Parents are under huge pressure to accumulate a corpus for their kids’ education purposes,” says Preeti Zende, SEBI-registered investment advisor and founder of Apna Dhan Financial Services. “Equity mutual funds, along with PPF and SSY (especially for daughters), are excellent tools to achieve this objective.”
The major advantage of mutual funds lies in their ability to beat inflation over a long-term investment horizon. Since higher education usually begins at the age of 18 (undergraduate) or 21 (postgraduate), parents typically have 10 to 15 years to build a sizeable corpus—enough time to benefit from equity market returns.
Ideal Asset Allocation: Finding the Right Debt-Equity Balance
Investment strategy should be driven by the time horizon and risk tolerance. Financial planner Sridharan S., founder of Wealth Ladder Direct, suggests:
• For investment durations over 7 years: A 70:30 allocation favoring equity is ideal.
• For shorter horizons under 7 years: A more balanced 50:50 allocation between equity and debt is recommended.
Zende adds that a well-diversified approach works best:
“One can have a blend of index funds, flexicap, and midcap funds in ratios like 40:40:20 or 50:35:15, depending on individual risk profiles.”
Why Not Just Take an Education Loan?
Some parents may question the need for long-term saving when education loans are readily available. However, experts advise that a well-thought-out investment plan provides a financial safety net.
“It’s always good to have your own corpus as backup,” Sridharan explains. “While education loans teach financial responsibility, there’s no guarantee your child will get a high-paying job immediately after graduation. You should be prepared for that scenario.”
Moreover, depending entirely on loans could burden children with heavy EMIs early in their careers, potentially impacting their financial independence and choices.
Planning Ahead: Factoring in Inflation and Currency Risks
Proper financial planning isn’t just about investing—it’s also about calculating the total cost of education realistically. Parents should account for inflation and the specific economic environment of the destination country if the child plans to study abroad.
“If your goal is 10 years away and inflation is 5% annually, you must increase your target corpus by that percentage each year,” says Sridharan. “Also consider foreign currency fluctuations if overseas education is on the cards. Investing in that country’s currency can help offset future exchange rate shocks.”
Other Smart Investment Options
While mutual funds remain one of the best options, complementary strategies can further secure your child’s academic future:
• PPF and Sukanya Samriddhi Yojana (for daughters) – Safe, tax-saving options with fixed returns.
• Sovereign Gold Bonds or international ETFs – To hedge against inflation or diversify globally.
• Currency investments – For those planning foreign education, this protects against currency volatility.
Investing in mutual funds for child’s higher education is not only advisable, it’s often essential in today’s rising-cost environment. With smart planning, balanced asset allocation, and long-term vision, parents can build a robust financial cushion that supports their child’s dreams—without relying solely on debt or luck.
