Planning child education with mutual funds? Expert suggests right fund mix and key portfolio tweaks

Planning for children’s education requires a well-structured investment strategy that balances growth and risk over the long term. Mutual funds, especially through systematic investments, can help build a sizeable corpus, but the right mix across market segments is crucial to ensure stability as well as returns.

A similar situation was faced by Alka, a 37-year-old investor and a viewer of The Money Show on ET Now. She wants guidance on whether her current mutual fund portfolio is suitable for funding her two children’s education.

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She and her husband together invest Rs 14,000 per month in mutual funds, apart from contributions to PPF. Their portfolio includes ICICI Prudential Value Fund, Kotak Multicap Fund, Canara Robeco Small Cap Fund, and two schemes from Nippon India and DSP each, which she referred to as mid- and small-cap funds.

Responding to the query, market expert Harshvardhan Roongta clarified that there appears to be a mix-up in fund categorisation. He pointed out that the Nippon India and DSP schemes mentioned are likely large- and mid-cap funds rather than mid- and small-cap funds. Understanding the exact category of each fund, he said, is important before making allocation decisions.

Roongta suggested two key adjustments to better align the portfolio with the long-term education goal. First, he recommended discontinuing investments in the DSP Large & Midcap Fund and redirecting those investments into a pure large-cap option such as the DSP Nifty 50 Equal Weight Index Fund. This would help create clearer exposure to large-cap stocks, especially since the portfolio already has allocations to mid- and small-cap segments.

“I am suggesting this for the sake of aligning the portfolio better in terms of large, mid and small caps. So, she should stop her investment in DSP Large & Midcap Fund and instead move the investment to DSP Nifty 50 Equal Weight Index Fund, moving from a large- and mid-cap fund to a pure large-cap fund because she already has exposure to mid- and small-cap segments,” the expert said.

Secondly, he advised switching from the Canara Robeco Small Cap Fund to a mid-cap fund from the same fund house. The idea behind this move is to reduce excessive exposure to high-risk small-cap stocks while strengthening the mid-cap allocation, thereby achieving a more balanced portfolio across market capitalisations.

He emphasised that these changes are aimed at improving portfolio structure rather than questioning the quality of the existing funds. A balanced allocation across large, mid and small caps is essential for long-term goals like education, as it helps manage volatility while still capturing growth opportunities.

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Separate investments or joint investments?

On whether investments should be held separately or jointly, Roongta noted that it is perfectly fine for spouses to invest in different names. The decision can be based on practical factors such as income flow and convenience. Some families may even choose to allocate investments for each child separately under different names.

“There are some investments going in the husband's name because there must be income coming in his name. There are some investments being made in the mother's name. In any case, there could also be a demarcation that one child's investments are done in the father's name and another child's investments are done in the mother's name,” the expert said.

“As long as the goals are very specific, such as the corpus she mentioned of Rs 14,000 that they collectively invest being for the educational purpose of both their children, it is okay. She can have it in two different names based on convenience. Whoever receives the money in their bank account can invest it directly from there. It is a fair point and there is nothing to really think twice about,” he further said.

Overall, the advice highlights that while disciplined investing is important, ensuring the right asset allocation and clarity in investment strategy is equally critical when planning for major financial goals like children’s education.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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