How to invest 20k in equity mutual funds for a child’s education and earn significant returns?
Education costs are rising rapidly in India. As a parent, starting early to save and invest for your child’s future education expenses is crucial. Here is a detailed guide on how you can invest Rs. 20,000 in equity mutual funds over the next 15-18 years to earn significant returns and meet your child’s education goals.
Identify your goal and time horizon
Most parents usually start saving for their child’s education from the time the child is born till the time they complete their graduation, which is typically around 18 years. So you need to have a minimum investment horizon of 15-18 years to accumulate a decent corpus. Considering you want to invest Rs. 20,000 now, your goal would be to generate returns of around Rs. 10-50 lakhs in 15-18 years factoring in inflation.
Choose the right mutual funds
Since you have a long investment horizon of 15-18 years, equity mutual funds are best suited to achieve your education savings goal. Equity funds have the potential to deliver higher returns over the long term compared to other investments like bank fixed deposits, PPF, etc.
Within equity funds, you should opt for diversified equity mutual funds that invest across different market cap stocks and sectors. You can also diversify by investing in a mix of equity and debt funds.
Systematic Investment Plan (SIP)
Instead of lump sum investing Rs. 20,000 at one go, use the SIP mode to start your investments. This helps you benefit from rupee cost averaging and invest a fixed amount regularly like Rs. 2,000 each month. SIPs help mitigate volatility risk associated with equity markets. Stick to your SIPs through market ups and downs to benefit from rupee cost averaging.
Power of compounding
Since you have 15-18 long years for your investments to grow, the power of compounding will work wonders. Your annual returns will keep compounding and earning returns over returns. For example, if your equity fund delivers a conservative 12% annualized return over 15-18 years, your Rs. 20,000 can grow to around Rs. 9-12 lakhs simply with the magic of compounding effect.
Review and rebalance
Review your portfolio and performance of funds at least once a year. Rebalance your holdings by redirecting flows to underperforming funds and maintain target asset allocation suitable for your risk profile and time horizon. Stay invested through market ups and downs as corrections are inevitable in equities. Don’t panic and exit during downturns.
Take the help of a financial advisor
Managing long term goals like education which have time horizons of over 15 years require diligent planning, choosing right instruments, disciplined investments and period reviews. Taking help of a SEBI registered financial advisor can help you craft the right investment strategy, avoid mistakes and achieve your goal with confidence. The advisor will also help you choose suitable mutual funds for your risk profile.
A well-planned and disciplined investment of Rs. 20,000 in the right equity mutual fund schemes has the potential to grow manifold over 15-18 years to a sizable corpus through the power of compounding. Starting early gives you more time in hand to achieve your child’s education goals comfortably. Create a dedicated investment portfolio and review it periodically with the help of a financial planner.