Why you should invest in mutual funds for your child's education

Find out why you need to start investing in mutual funds as early as possible for your child's education.

The importance of education cannot be overstated enough. If you're a new parent or planning to be one, then the thought of educating your child must have already crossed your mind. As we are aware, the cost of education in India has skyrocketed through the roof. If surveys are to be believed, the cost of private schooling for children has increased by a whopping 175%, and the cost of getting a college degree or diploma has shot up by about 100% in the last ten years alone.

So, all this information leads to one thing, your financial preparation for the education of your child. Your child's education will be one of the biggest expenses that you will face in your life, apart from buying a house or a car. And it is paramount to plan it years before your child actually needs it. The single, best way to start building a corpus for your child is by investing in a mutual fund for child education.

The first thing that you need to do is find out how much you should invest in order to end up with a sufficient amount. Cost of education in India is increasing every year, so estimating what the expenses will be in the future when your child comes of age is important. The cost of an MBA in 2007 at the Indian Institute of Management was approximately Rs. 5 lakh in 2007, while the current cost is close to Rs. 20 lakh.

So, judging by the percentage increase in cost, if you have a one-year-old child now, the cost of an MBA in IIM when he or she requires it can be as high as Rs. 50 Lakh. Thus, it is clear that you need to start planning investment strategies immediately in order to end up with such a corpus.

There are some very good reasons to choose mutual funds over child education plans for creating your child's education expenses.

Compared to other investment options, mutual funds give the best returns over the long term. If you plan well and choose a diversified portfolio, then you may expect high returns. Since mutual funds are ideally the most beneficial when one stays invested for a long time, it is the most suitable option for creating a fund for your child's education. Education expenses are unavoidable, long term expenses if you're a new parent. So, you can start investing as early as possible to achieve a sizable corpus.

Many of us do not want to invest lump-sum amounts in mutual funds. Also, investing that way is arbitrary; one can do it when one wants, and skip doing it or delay it. This can be a haphazard way of investing if your goal is as important as your child's education. To make things simpler and much more disciplined, you can start investing via SIPs which allow you to invest a fixed amount every month on a specified date. This way, your investment will keep going irrespective of whether you remember it or not.

If you're deciding between choosing a child plan and a mutual fund for your child's education, then that is the wrong comparison in the first place. A child plan is more of an insurance plan with an added investment option which is more useful to secure your child's education in case something happens to you or your spouse, whoever is insured. Mutual funds, on the other hand, are pure wealth creation tools that will help you accumulate a corpus for your child's education.

When it comes to financial planning, your child's education is right up there alongside your retirement plan. It is one of the things you should start thinking about even before you plan for a child. And the correct time to start investing in mutual funds for your child's education should either start when your child is between 1-5years of age, or even before that. So, if you have a child or are planning for one, then start investing in the best mutual fund for child education as soon as possible.