How and where to invest a lump sum for your child's education? | Value Research Let’s find out the worthy investment avenues to invest money for the education of your child
Ask Value Research

How and where to invest a lump sum for your child's education?

Let's find out the worthy investment avenues to invest money for the education of your child

One of the most common questions parents ask is where to invest their lump sum money for their child's education. Whenever a huge sum of money is received through a bonus, sale of real estate, inheritance, grandparents' gift, etc., parents start looking for good investment opportunities. So here's how to go about investing a huge chunk of money for your child's education.

Since this money is usually invested in the higher education of children, the time horizon would be somewhere around eight to 10 years. In such cases, nothing is better than investing in equity and the best option would be to go for a flexi-cap fund. These funds invest in diversified investments, where the fund manager invests across companies from all sectors and market caps.

Alternatively, if you're looking for a tax benefit, you can also go for a tax-saving fund. They are similar to flex-caps in nature - they are free to invest across companies of different sizes and belonging to different sectors. But the advantage is that they help you claim a deduction upto Rs 1.5 lakh under section 80C of the Income Tax Act.

The average returns generated by flexi-cap funds over any 10-year period ending over the last five years is 12.13 per cent. Assuming the same return, if anyone would have invested Rs 1 lakh, say 10 years back, they would now have Rs 3.14 lakh.

Equities are volatile by nature and so are flexi-cap funds because they are pure equity funds. While investing in equities, it is always recommended to spread your investment over a period of time rather than investing in a lump sum. This averages your cost of purchase and reduces the risk of investing at a market high. The duration you should spread your money would broadly depend on the scale and significance of the money you are investing. As a broad rule, spread it over half the period it took you to earn. But do not spread it beyond three years. Three years is usually a sufficient time to capture both the market ups as well as the market downs, so that should be a sufficient period.

Suggested watch:

How should I spread my investments across sectors?

How long should I spread a lump sum?

Want tailor-made mutual fund portfolios specific to your goals and investment horizon? Subscribe to Value Research Premium.

Have a different question in mind? Ask us


Recommended Stories

Other Categories