Every parent dreams of giving their child the best education. But education is getting expensive, and the costs are rising by 10% every year. A college degree that costs ₹25 lakh today could rise to nearly ₹1 crore in the next 15 years.
As the proverb goes, “the early bird catches the worm.” Similarly, in investing terms, the earlier you start, the more your money can compound, and it can beat inflation.
In fact, India’s mutual fund AUM has surged 22% YoY to ₹70 trillion by Mar 2025.
Source
This data shows a lot of parents are investing in Mutual Funds to build wealth.
This guide explains why mutual funds are ideal for child education goals, which funds to consider, and how to invest wisely for your child’s big dreams.
Comparison Table: Best Mutual Funds for Child’s Education
| Fund Name | Type | AUM (₹ Cr) | Return Since Inception |
|---|---|---|---|
| Nippon India Small Cap Fund | Equity – Small Cap | ~36,000 | 27.07% |
| HDFC Mid Cap Opportunities Fund | Equity – Mid Cap | 56,033 | 21.76% |
| SBI Contra Fund | Equity – Contra | ~20,000 | 19.59% |
| HDFC Balanced Advantage Fund | Hybrid – Balanced Advantage | 73,349 | 16.04% |
| DSP Nifty 50 Equal Weight Index Fund | Index – Large Cap | ~2,500 | Varies with index |
Why Invest in Mutual Funds for Your Child’s Future?
Beats Inflation
Education expenses rise faster than general inflation, so investing early means you are giving your money more time to grow while compounding does its magic. For example, a SIP of ₹10,000 per month at 12% return grows better if started at the age of 24 vs. at the age of 30.
This shows how early investments can build your corpus over time. Mutual funds have historically delivered 10 to 15% p.a. over long horizons, thereby beating inflation.
Rupee-Cost Averaging
SIPs create regular investment habits, and the stress of timing the market is eliminated. By investing a fixed amount every month, you buy more units when prices fall and fewer when they rise. This rupee-cost averaging helps you sail smoothly through the market ups and downs because SIPs allow you to invest slowly over time. Even small SIPs of ₹100 and ₹500 are now possible under new SEBI rules and regulations. This rule makes mutual funds available for people with all kinds of income.
High Growth Potential
If your investment duration is 10 to 15+ years, equity funds like large-cap, mid-cap, small-cap, and multi-cap can do well as the market grows. For example, small-cap funds such as Nippon India Small Cap gave a return of approx. 59% last year, while multi-cap funds like SBI Contra, gave about 19.6% returns. If you plan to invest for years, these returns can grow, and they can increase your corpus.
Managed by Professionals
All mutual funds are handled by expert fund managers. They select stocks, determine risks, so you don’t have to pick individual shares. A single mutual fund investment typically spreads across 100s of companies from different sectors. This reduces risk because Mutual fund managers invest in many assets to capture the upside movement while cushioning extreme downside moves.
Flexibility
Mutual funds offer liquidity, and you can redeem your investments anytime. You can invest through SIPs, step-up SIPs, or lump-sum investment mode. Once you figure out your risk profile and goals, you can invest in equity, hybrid or debt funds. There are funds that automatically adjust equity-debt investment mix for moderate-risk investors.
Tax Efficient
While regular equity Mutual Funds don’t give immediate tax deductions, equity ELSS funds do qualify under Section 80C which gives up to ₹1.5 lakh deduction.
Did you know? The Indian mutual fund industry now has over 70 lakh crores in AUM and more than 91 million SIP accounts.
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Best Mutual Funds for Child’s Education in India
Choosing the right fund depends on your goals and risk tolerance. For long-term growth, equity funds are the right choice. If your risk appetite is moderate, then you can consider hybrid funds. But if you are investing in the short-term, then you can opt for debt funds or large-cap index funds. Below are top picks:
Fund Details:
Nippon India Small Cap Fund
This fund is being managed by Mr. Samir Rachh (Since January 2017) and Mr. Tejas Sheth (Since February 2023) who is an assistant fund manager.
The fund has provided 27.07% of return since inception, and it has outperformed the category over the last 1/3/5/7/10 years.
It has delivered the highest returns in the category over the last 7 and 10 years and has been in the top 3 over the 3 and 5-year period.
The fund has delivered the best risk-adjusted returns over the last three years, depicted by the highest Sharpe ratio.
Find more details here.
HDFC Mid Cap Opportunities Fund
This fund is managed by Mr. Chirag Setalvad, who has been the head of equities since June 25, 2007, and Mr. Dhruv Muchhal who is an Equity Analyst and Fund manager for Overseas investment.
HDFC Mid Cap Opportunities Fund is the largest fund in the mid-cap space with an AUM of Rs. 56,033 crores and is the only fund in the category to have an AUM of more than Rs. 50,000 crores.
The fund has provided a 21.76% return since inception and has outperformed its category and the mid-cap index in all the time horizons of 1/3/5/7/10 years.
The fund has delivered better returns per unit of risk depicted by the lower standard deviation and the beta compared with the category average.
Find more details here.
SBI Contra Fund
The fund has been in existence for approximately 25 years and has been managed by Mr. Dinesh Balachandran since May 2018 who has 17 years of rich experience in this field.
This fund has provided a whooping return of 19.59% since its inception date and has outperformed its benchmark S&P BSE 500 TRI in all the time horizon.
The fund follows a contrarian strategy while investing in equity and provides exposure to companies of all sizes.
The fund has delivered the best risk-adjusted returns in the category, as depicted by the highest Mean Return, Sharpe Ratio, Sortino Ratio and Alpha.
HDFC Balanced Advantage Fund
HDFC Balanced Advantage Fund is one of the oldest funds in India and is the largest fund in the balanced advantage category, with an AUM of Rs. 73,349 crores.
The fund has been the top performer in the category for over 1/3/5 years and has delivered an impressive return of 16.04% since inception.
Although the fund has been volatile more than the category, it has delivered a significantly higher alpha of 10.34% compared to the category average of 1.35% over three years.
This fund has been managed by Mr. Srinivasan Ramamurthy, Mr. Gopal Agarwal, Mr. Anil Bamboli, Mr. Arun Agarwal, and Mr. Nirman Morakhia.
Find more details here.
DSP Nifty 50 Equal Weight Index Fund
This fund is being managed by Mr. Anil Ghelani (since July 2019) and Mr. Dipesh Shah (since November 2020).
This fund tracks the Nifty 50 Equal Weight TRI, allowing us to have exposure to large-cap equities where the probability for alpha generation is very low.
Compared with Nifty 50 TRI, Nifty 50 Equal Weight Index TRI has delivered better returns with lower volatility over a long-term period from June 2000 to April 2023.
The fund delivered an alpha of 3.75% whereas the other funds in the category struggled to outperform the benchmark over the last three years.
Find more details here.
Start investing in Mutual Funds with EduFund so money never comes in the way of your child’s dreams.
How to Choose the Right Fund for Your Child’s Age
Your asset allocation should change as and when your child grows
Child’s age: Newborn to Age 5
Investment duration: 13 to 18+ years
If you start early and have an investment duration of 13 to 18 years, you can choose equity funds. You can allocate your maximum investment in high-growth funds like equity small- and mid-cap or multi-cap. Also include tax-saving ELSS funds to benefit from 80C.
For long-term goals, you may combine equities and debt because equity funds offer the opportunity for higher returns. In practice, consider SIPs in 2 to 3 diversified equity funds.
Child’s age: Age 6 to 12
Investment duration: 6 to 12 years
If your child’s age is between 6 to 12 years, you can prefer to allocate your funds into equity but make sure to balance it with some short-term debt-funds. You can have 70:30 or 60:40 split into equity and debt funds. You can also step up SIP amounts as your income grows.
Child’s age: Age 13 to 18
Investment duration: 1 to 5 years
As the investment duration is short, college expenses are near, so always prefer a risk-free investment. Your focus should be more on debt or dynamic funds that are currently low on equity. To preserve capital, government bond funds or fixed-maturity plans are the safest option. The goal is to have most money locked in stable returns.
Common Mistakes to Avoid While Investing for Education
- Starting Too Late: If you delay your investments, it generates low returns and reduces your corpus. Every year delayed means lakhs of rupees not compounded. Use EduFund Cost of Delay Calculator to see the impact and start now.
- Chasing Recent High Returns: Never switch your funds based on last year’s returns and performance. Because a fund that gave 50% last year may underperform next year. Always look for funds with consistent year-on-year performance.
- Ignoring Your Risk Profile: Don’t chase small-cap or sectoral funds if you can’t handle volatility. You should have an asset mix aligned with your investment duration and risk appetite.
- Avoiding Diversification: Putting all your eggs in one basket is not a good idea and it can prove to be risky. Instead, diversify your investment across equity, balanced, and debt funds.
- Overlooking Costs: High expense ratios and exit loads can minimize your returns. Make sure to check the fund’s expense ratio before investing. The lower it is the better it is for long-term gains.
- Not Stepping Up SIPs: As your income grows, so should your SIPs. Because education costs rise way more than general inflation. It’s always a good idea to step up SIP instead of keeping it fixed.
- Panic Selling: Equity markets may have bad years. So, don’t redeem at every market dip. Keep a long-term view and continue your SIPs even during volatility.
FAQs
Can I invest in mutual funds under my child’s name?
es, you can invest in your child’s name with you as guardian. Returns are similar, but tax rules differ slightly.
Should I pick a children’s mutual fund or a regular one?
Children’s plans offer discipline with lock-in periods, while regular funds offer more flexibility. Returns are generally comparable.
What’s the ideal asset allocation for education goals?
What’s the ideal asset allocation for education goals?
A: Use the 100-minus-age rule for equity allocation. Go high on equity early and shift to debt as college nears.
If your child is 10 years old, 100 – 10 = 90. So, 90% of your portfolio can be in equity and 10% in debt.
What if I started saving late?
Increase your SIP or go with balanced funds. You may also need to plan for loans or larger one-time contributions.
Disclaimer – Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The past performance of mutual funds is not necessarily indicative of the future performance of the schemes. The mutual fund schemes mentioned are only for educational and informational purposes, and no investment is recommended.
