Investing · 5 min read
Investing for Your Child:
Mutual Funds for Education
A long horizon is the biggest advantage a parent has. A plain equity SIP, started early and protected by term cover, beats most products sold as child plans.
Ravinder Pal Singh Ubeja ·
For a goal 10 to 18 years away, a regular SIP into diversified equity funds, moved gradually into safer funds as the date approaches, is usually the simplest and most effective plan. Protect it with term cover on the earning parent.
Start with the number
Estimate today's cost of the education you have in mind, then inflate it to the year it will be needed. Education costs have risen faster than general inflation for years, so use a higher rate. Work back to a monthly SIP with our SIP calculator.
Which funds
- Long horizon (10 years or more): diversified equity funds such as flexi-cap or large and mid-cap funds.
- Children's funds: hybrid funds with a five-year lock-in or until the child turns 18. The lock-in can help discipline but limits flexibility.
- Last three to four years: shift steadily into debt and hybrid funds, so a market fall in the final year cannot derail the plan.
Investing in the child's name
A mutual fund folio can be opened in a minor's name, with a parent or guardian operating it. The child must be the sole holder. When the child turns 18, the folio has to be converted to their own name with fresh KYC before further transactions.
For a daughter: Sukanya Samriddhi
The government's Sukanya Samriddhi Yojana offers a fixed, tax-free return for a girl child and works well alongside an equity SIP as the safe part of the plan. Its rate is set each quarter.
Protect the plan
The plan depends on the parent's income continuing. Term cover sized to fund the goal if the parent is not there is the part most families leave out. Keep insurance and investment as separate decisions; see how much term cover you need.