How mutual funds can help raise Rs 2 crore for your child's higher studies

Pramila Deshpande
·2 min read

As a responsible parent, you would want to secure your child’s future in every manner. Since studies are the biggest asset for any individual, most parents want their kids to get the best education. Education from premium institutes can cost a fortune.

The question of collecting Rs 2 crore for a child’s education via mutual funds is essential, considering that the education sector’s inflation rate is between 10% and 15%.

Let us first understand the meaning of mutual funds.

What are mutual funds?

In a mutual fund, money from multiple investors is collected and invested in various securities such as shares, short-term debt, bonds, etc. Usually, an AMC (Asset Management Company) forms an investment vehicle in which funds from multiple investors – both individual and institutional, are pooled.

These investors share a common objective concerning the investment. The pool of funds so collected is managed by a fmund Manager, expert finance professional.

Making an investment in mutual funds for a child’s education

Here, since it is clear that the parent is targeting accumulating Rs 2 crore for the child’s education, one needs to create a financial investment plan accordingly.

The parent has to be clear on – for how many numbers of years the investment will continue.

Suppose the child is 5 years of age, 13 years would remain for him to begin his/her college at 18.

So, the parent will have to continue saving and investing a specific amount annually for 13 years. The interest rate would be earned on that via mutual funds which would yield the desired amount at the end of 13 years, as planned.

As per this scenario, the future amount of the course is Rs 2 crore after 13 years. Considering the inflation rate at 10%, the current cost of education for the course would be approximately Rs 60 lakh.

Tentatively, if we take the rate of interest on mutual funds at 10%, the parent would have to invest somewhere between Rs 60,000 and 65,000 per month in mutual funds starting today.

Important Points

  • As the parent’s income increases, one can increase the amount of investment in mutual funds.

  • When the investment is made in mutual funds, it is better to move the accumulated amount in a more secure platform like a Fixed Deposit at least 2-3 years before the planned time. It will save the amount from being eroded.