From piggy bank to Ivy league: Funding your Child’s Education

It’s that time of the year when school and college admissions are in full swing and how to finance the best possible option for their child's education is there in every parent's mind. In India, where competition for seats in prestigious institutions is fierce and educational expenses continue to rise, managing the financial aspect of a child’s education can be a daunting task. Here’s a checklist on how you can utilize your Mutual Fund corpus to fund your child’s upcoming Education expenses.

Checklist to Utilize mutual fund corpus for funding education

Withdraw strategically

If you decide to utilize mutual funds, consider redeeming them strategically to minimize taxes and fees. For example, you may want to prioritize selling funds with the lowest tax impact.

Understand Exit Load and Charges

Be aware of Exit load structure of the mutual funds when you’re planning to redeem and assess the impact.

Maintaining Asset Allocation

While utilising mutual funds for education expenses, ensure that you continue to maintain an appropriate asset allocation. Avoid over- reliance on a single asset class or mutual fund scheme. In case you are over exposed a particular asset class, say equity or debt, this can be an opportunity to calibrate the situation. For instance, if your existing debt exposure is way too high, it may be ideal to use debt funds predominantly to face the immediate education requirement.

Explore other Funding Alternatives

While utilizing mutual funds might seem like the most accessible option. However, explore other funding options like Students Scholarships, Education loan. Compare the potential benefits and drawbacks of each option to determine the most suitable approach for your circumstances.

Emergency Fund Evaluation

Check if you have enough money set aside for emergencies, like medical bills or sudden job loss. Your emergency fund should cover at least six to twelve months of living expenses. It may not be ideal to use up this portion of your corpus for educational requirement.

Consider Systematic Withdrawal Plan (SWP)

For students proceeding for higher studies requiring a re-location, there is likely to be a continued set of expenses including stay, food, gadgets, etc. It may be ideal to set aside a specific sum of money in HDFC Liquid Fund or HDFC Ultra Short Term Fund and opt for an SWP. It allows you to withdraw a fixed amount periodically while keeping the remaining investment intact for potential growth. This can help you budget and manage cash flow for education expenses without needing to liquidate a large portion of your investments all at once.

Avoid unnecessary spending

Be prudent in your expenses and avoid unnecessary splurging. Encourage your child to understand the value of money, involve them in decision making process. Instilling good saving habits early will empower them to take charge of their financial future.

Reinvestment plan

In case if you are withdrawing a large amount from your reserves, you may need a plan for making a “come back”. In other words, rebuilding your corpus. This ensures that you continue to work towards your long- term financial goals and maintain the growth potential of your portfolio.

Review regularly

Periodically review your investment strategy and adjust it based on changes in your financial situation, market conditions and your child’s educational needs. Consider rebalancing your portfolio as needed to maintain diversification.

In the end it’s not just about numbers and investments; it’s about the dreams we hold for our children. Through mutual funds, we can turn those dreams into tangible opportunities, ensuring that financial hurdles never dim their bright future. Let’s empower their dreams and shape a tomorrow filled with endless possibilities.

Views expressed above are indicative and should not be construed as investment advice or as a substitute for financial planning. Due to the personal nature of investments, investors are advised to consult their financial advisors before investing