In the pursuit of providing an exceptional education experience for their children—be it during the formative years, primary schooling, or higher education—every parent shares a singular concern: financing this educational journey. With the education costs skyrocketing, every single moment becomes crucial because time is money. As the adage goes, “The early bird catches the worm.”, delving into preparations for your child’s future sooner rather than later is akin to higher corpus maturing over time. Thereby, ensuring a more robust foundation for their educational endeavours.
To help you better understand the situation, consider two friends, Ram and Lakhan. They both decided to invest for their child’s future a sum of Rs. 10,000/Month SIP in a fund that gave 12% annualized returns. The only difference is Ram started investing when he was 24 years old and Lakhan started investing when he had his first child at age 30. At the age of 40 Ram would have had Rs. 58.13 Lakhs whereas Lakhan would have had just Rs. 23.23 Lakhs, loss of almost Rs. 35 Lakhs because of delaying the investments. Therefore, the earlier you start, the better it is.
But how to find a good investment? How to know if a scheme is good for you as there are “n” number of things that hover around.
Perplexed yet? Don’t worry, we’ve got you.
To simplify this vast world of mutual funds for you, we have prepared a list of the important factors one should consider while investing in Mutual Funds.
- Time Horizon – How much time do you have in hand determines your risk-taking ability. The higher the time horizon, higher the risk you can take and vice versa.
- Risk Appetite – Determine how much risk you can take. This will depend on various factors such as time horizon, certainty of cashflows, amount of investment, etc.
As a general rule of thumb:
- Equity funds are suitable for individuals with high-risk appetite and longer time horizon (5 – 10 years or even more).
- Hybrid Funds are suitable for individuals with low to moderate risk appetite and having medium term time horizons (3-5 years).
- Debt Funds are suitable for low-risk appetite investors for short term time horizon.
- Investment Strategy – The investment strategy adopted by the fund plays a crucial role to determine if it is suitable for you. A high risk investment strategy might
- Fund Details – See who is managing the fund and for how much time, where it invests, how much are its assets (higher the better), what is the expense ratio (lower the better).
- Past Performance – How the fund has performed in the past, whether it has outperformed in the bull markets and protected your capital in the bear markets, etc. will give you an idea whether the fund manager has managed the fund appropriately.
Note: this is not an all-inclusive list.
Top Mutual Funds for Parents
Still worried? Below is a list of top mutual funds parents can consider for their child’s education planning.
| Sr. No. | Scheme Name | Category | Sub-Category | Inception Date | AUM | Expense Ratio | 1Y Return | 3Y Return | 5Y Return |
| 1. | Nippon India Small Cap Fund | Equity | Small Cap | 1/1/2013 | 43,816 | 0.67% | 59.3% | 42.60% | 31.57% |
| 2. | HDFC Mid-Cap Opportunities Fund | Equity | Mid Cap | 1/1/2013 | 56,033 | 0.80% | 53.99% | 33.89% | 25.41% |
| 3. | SBI Contra Fund | Equity | Contra | 1/1/2013 | 21,482 | 0.69% | 45.69% | 33.46% | 26.70% |
| 4. | HDFC Balanced Advantage Fund | Hybrid | Dynamic Asset Allocation | 1/1/2013 | 73,349 | 0.80% | 38.43% | 27.55% | 19.72% |
| 5. | DSP Nifty 50 Equal Weight Index Fund | Equity | Index (Large) | 10/27/2017 | 1,004 | 0.40% | 33.31% | 23.64% | 18.89% |
Note: All are Direct plan and growth option; AUM and Expense ratios are as on December 31, 2023; 3Y/5Y returns are annualized and as on January 30, 2024. Source: Value Research
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.
- HDFC Mid Cap Opportunities Fund:
- This fund is being 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.
- 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.
- 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.
Above all the funds have given stellar returns and fare better amongst peer schemes. Parents can consider a fund that is appropriate based on their financial goal, risk tolerance and time horizon. Before embarking on any investment decision, consult a financial advisor for guidance. Their expertise not only enriches your understanding but also strengthens your strategy, ensuring a secure and informed financial journey.
Disclaimer – Mutual Fund investments are subject to market risks, read all scheme related documents carefully. The past performance of the 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.
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