Is it possible to achieve child education goal with help of mutual funds?

We have received a query from our reader who wishes to accumulate for his child’s higher education and already has started investing for the same. He writes,

I wish to save for my son’s higher education which is 20 year from today for which I require Rs. 10 lakh. For this purpose, I have already invested in a portfolio, where I am investing Rs. 6,000 per month. Kindly guide me whether my portfolio is right or I need to make any changes?

Large Cap Fund - Rs. 2,000 per month
Multi Cap Fund - Rs. 2,000 per month
Small Cap Fund - Rs. 1,000 per month
Mid Cap Fund - Rs. 1,000 per month

- Pravin Patel

As you said, you are going to require Rs. 10 lakh for your son’s higher education which is 20 years from now, we need to first adjust it for inflation. So, considering the inflation at 10 per cent, post 20 years you would be requiring Rs. 67.27 lakh for your son’s education. If we consider the average 5-year returns provided by the large-cap funds, multi-cap funds, small-cap funds and mid-cap funds then they stand at 11.09 per cent, 12.42 per cent, 15.59 per cent and 14.15 per cent.

We assume that the returns are going to remain constant on an average for the next 20 years. Considering this, you are able to accumulate Rs. 68.77 lakh, if you continue with the existing portfolio. That said, there is a possibility that you can achieve your goal. However, as we don’t know your risk profile, we cannot comment on whether the portfolio is right for you or not. So, it is really important for you to first assess your risk profile and based on the same decide the assets in which you should invest. Though it is highly recommended to engage with a fee-only financial planner and have a financial plan in place if you don’t already have one.