Smart Investing for Higher Education: A Practical Guide

The market is unpredictable, but amidst this, mutual funds have produced double-digit returns and thus, they have become one of the most favorable investment instruments.

This article will help you plan your higher education. Let’s see how.

Following are the basic rules that will help you secure your future:

• Use the power of compounding to reach your goal
• Start early to accumulate wealth over the long-term
• Factor inflation while planning
• Know the cost of your goal in current value
• Save for each target separately
• Review the portfolio of each goal at every interval

Scenario

Assume you just completed engineering in March 2019 from an engineering college and you are about to start working to gain experience in the corporate world.

You are set to join on 1st July, and in the meanwhile, you thought of charting out your career plan and evaluating different options.

After brainstorming, you zero down on two options:

• Option 1: An executive MBA after working for 10 years.
• Option 2: A regular MBA after working for 5 years.

Anyhow, we shall cover both the scenarios in the article.

Executive MBA After 10 years

Let us estimate the cost of education. In the current year, the cost of an executive MBA varies from 7 lakhs to 40 lakhs.

One of the premier B-school, ISB charges Rs. 38 lakhs currently, some other known names within the top-15 colleges, cost anything between Rs 7-10 Lakhs.

But you are planning to do in ten years. Thus, you need to compute the cost in 2029.

Regular MBA  After 5 years

If you plan to opt for a regular MBA of two years, the fees for the top five B-schools are in the range of Rs 15-20 Lakhs whereas another top 15 B-schools charge in the range of Rs 7-10 Lakhs.But given you are planning to do in five years.

Therefore, you need to compute the cost in 2024.

How Can You Accumulate the Money?

There are multiple investment options available in the market, but mutual funds are the most rewarding instrument. If you compare mutual funds with public provident fund, bank deposits, gold, real estate, etc., you will see that mutual fund offers the highest returns.

Your objective of higher education is crucial. Thus, it is advisable that you use mutual funds for accumulating wealth. This shall prevent you from making any last minute arrangement.

What Should Your Approach of Investment Be?

 

In the case shown above, the first option is five years ahead and the second option is ten years ahead.
The first option can be considered as medium-term, and the second can be viewed as a long-term option.

For the first option, you can opt for a balanced approach with equity and debt both, or you can opt for large-caps, as they ensure stability given the size of the companies.

On the other hand, if you have more than a decade in hand, go all-in into equity funds as these funds have the highest growth potential over the long-term.

Thus, for the second option, you can consider full investment in equity funds.

Approach to Investment

You can’t accumulate a hefty amount in a month or a year or at a time. Go for a slow and steady attitude instead of all-in.

Remember the Hindi proverb – बूंद-बूंद से सागर भरता है

You need to adopt a similar approach.

By now you must have guessed it already. Opt for a Systematic Investment Plan (SIP). SIP empowers you to make investing a habit and provides you with accomplished goals if followed in a disciplined manner.

How Much Should You Invest?

Very simple, check out Groww calculators and key in your input, such as goal amount, horizon, and expected returns, you are sorted.

Here is the SIP calculator for you to try:

https://groww.in/sip-calculator/

For Medium Term

Let us assume 12% returns for the medium term horizon given the risk appetite is moderate and you have a portion of the debt in the portfolio that moderates the return grade.

For Long-Term

Let us assume 18-20% returns for the long-term horizon given the risk appetite is high. But given the businesses undergoes complete market cycle, the equity offers high returns.

Taking into account the above, the monthly investment required to accumulate the wealth for two options are –

Which Funds Should be Selected?

You need to have different funds for different goals. This ensures there is no mix and match in your goal accomplishment.
Selecting the ideal fund that will help you meet your requirement is very important as it ensures that your goal is achieved.

Thus, instead of investing in just one fund for each objective, you may consider diversifying your investment over at least two or three different funds if the monthly outflow towards the goal is on a higher side.

Following are a few funds that you can consider investing in 2019 for the child’s education goal:

Small-cap funds

1.HDFC Small Cap Fund

Objective

The fund aims to give long-term capital appreciation by investing predominantly in small companies.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 0.87% NAV Rs. 46.7 Fund Size Rs. 6,312 Crore

2. Reliance Small Cap Fund

Objective

The fund seeks to deliver long-term capital appreciation by investing in equity and equity related instruments of small-cap companies.

Fund Details Risk Moderately High Min SIP Amount Rs. 100 Expense Ratio 1.15% NAV Rs. 42.6 (26 Apr 2019) Fund Size Rs. 7,245 Crore

3. SBI Small Cap Fund

Objective

The fund attempts to give investors an opportunity to create long-term wealth, while offering an open-ended scheme.

The fund aims to achieve this by investing predominantly in a well-diversified basket of equity stocks of small-cap companies.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 1.19% NAV Rs. 55.3 (26 Apr 2019) Fund Size Rs. 1,604 Crore

Mid-Cap Funds

4. HDFC Mid-Cap Opportunities Fund

Objective

The scheme endeavors to offer long-term capital appreciation by investing in mid-cap companies.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 1.22% NAV Rs. 57.9 (26 Apr 2019) Fund Size Rs. 20,539 Crore

5. L&T Midcap Fund

Objective

The fund endeavors to generate capital appreciation by investing primarily in midcap stocks. The fund invests in companies that have a market capitalization between the highest and the lowest constituent of the Nifty Midcap 100 Index.

Fund Details Risk High Min SIP Amount Rs. 500 Expense Ratio 0.93% NAV Rs.57.9 (26 Apr 2019) Fund Size ₹3,733 Crore

6. Kotak Emerging Equity Scheme

Objective

The scheme seeks to generate long-term capital appreciation from a portfolio of equity and equity-related securities, by investing in mid-sized companies.

Fund Details Risk Moderately High Min SIP Amount Rs. 1000 Expense Ratio 0.80% NAV ₹41.3 (26 Apr 2019) Fund Size ₹3,535 Crore

Value Category

7. L&T India Value Fund

Objective

The fund seeks to provide long-term capital appreciation by investing in a diversified portfolio comprising of equity and equity-related securities.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 0.95% NAV Rs. 37.8 (26 Apr 2019) Fund Size Rs. 7,726 Cr

8. Invesco India Contra Fund

Objective

The fund aims to generate capital appreciation by investing predominantly in equity and equity related instruments through contrarian investing.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 0.97% NAV ₹52.2 (26 Apr 2019) Fund Size Rs. 3,252 Crore

9. ICICI Prudential Value Discovery Fund

Objective

The scheme attempts to generate returns by providing both dividend income and capital appreciation. It is by investing primarily in a well-diversified portfolio of value stocks.

Fund Details Risk Moderately High Min SIP Amount Rs. 100 Expense Ratio 1.36% NAV ₹155.5 (26 Apr 2019) Fund Size ₹15,702 Crore

Large-Cap Category

10. Aditya Birla Sun Life Equity Fund

Objective

The fund aims to create capital growth over the long-term, while also providing regular income. The fund seeks to invest in a portfolio of 90% equities and 10% debt and money market securities.

The scheme employs both top-down and bottom-up approach of investing. A portion is also invested in Initial Public Offering (IPO), emerging sectors & other primary market offerings.

Fund Details Risk Moderately High Min SIP Amount Rs. 100 Expense Ratio 1.07% NAV ₹773.3 (26 Apr 2019) Fund Size ₹10,027 Crore

11. Axis Bluechip Fund

Objective

To achieve capital appreciation by investing in a diversified portfolio, which mainly consists of equity and equity-related securities.

Fund Details Risk Moderately High Min SIP Amount Rs. 1000 Expense Ratio 0.88% NAV Rs. 30.9 (26 Apr 2019) Fund Size Rs. 4,221 Crore

Hybrid: Aggressive Category

12. ICICI Prudential Equity & Debt Fund

Objective

The scheme aims to generate long-term capital appreciation and income by investing in equity and related securities as well as fixed income and money market securities.

While the equity portion hoves in the range of 60-80 percent, the debt accounts for the remainder.

Fund Details Risk Moderately High Min SIP Amount Rs. 100 Expense Ratio 1.06% NAV ₹144.4 (26 Apr 2019) Fund Size Rs. 25,467 Cr

13. SBI Equity Hybrid Fund

Objective

The fund aims to provide long-term capital appreciation along with the liquidity by investing in a portfolio of debt and equity.

It invests in a diversified portfolio of equities comprising of high growth companies while balancing the risk with high rated fixed income securities.

Fund Details Risk Moderately High Min SIP Amount Rs. 500 Expense Ratio 1.32% NAV Rs.142.3 (26 Apr 2019) Fund Size Rs. 27,907 Cr

Conclusion

To conclude, we can say – Mutual Funds Sahi Hai if you intend to accumulate wealth for your higher education. While you are free to choose other options, you will surely come back to mutual funds owing to their capability of beating inflation consistently.

By adopting the strategies mentioned above, there is a good chance that you will be able to save enough to provide yourself with the best higher education.

So, what are you waiting for? Invest today, groww your wealth.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww