Where to invest the lump sum of money that parents have set aside for their child’s education is one of the most frequent concerns.
Every time a sizable quantity of money is acquired as a bonus, as the sale of real estate, as an inheritance, as a present from grandparents, etc., parents start looking for good investment opportunities.
So in this blog, we have discussed how to invest a lump sum investment for your child’s education.
What is a lump sum investment?
The term “lump amount” often refers to a significant sum of money. Financially speaking, investing a big quantity of money all at once as opposed to splitting it up into several payments.
Investments made in lump sums include investing all of the investor’s funds. For instance, if someone wants to invest all of the money in his possession in mutual funds or other types of investment vehicles, it is referred to be a lump sum investment.
A lump sum payout is comparable to that, but it is not an investment but a payment made to others. As the name implies, no installments or partial payments are made.
Best ways to invest a lump sum for your child’s education
Following are the best ways to invest a lump sum amount for your child’s education:
1. Dynamic equity mutual funds
They are often referred to as balanced advantage funds or dynamic asset allocation funds. They make both loan and equity investments. The fund manager maintains a balanced asset allocation.
In many cases, the exposure to securities ranges from 30% to 80% or even more. Most dynamic equity funds make sure that their equity and arbitrage positions remain over 65%.
They are, therefore, qualified for the tax benefits offered to equity mutual funds. Dynamic equity mutual funds are less risky and volatile than stock mutual funds. However, they also provide lower returns than they do.
2. Equity-oriented hybrid mutual funds
They are also referred to as aggressive hybrid mutual funds or balanced mutual funds. They devote between 65% and 80% of their resources to ventures involving equity. The remainder is made up of debt instruments.
Due to their status as equity mutual funds, they are eligible for tax advantages. Balanced mutual funds have higher volatility and less security than dynamic equities funds. Over time, they offer greater returns than they do.
3. Equity multi-cap mutual funds
They are also known as “diversified equity mutual funds.” They devote a minimum of 65% of their assets to stock investments and instruments linked to equities.
Equity investments are made in large-, mid-, and small-cap enterprises via multi-cap funds. Over time, multi-cap funds outperform hybrid mutual funds in terms of returns. But there is also increased risk and turbulence.
4. Debt mutual funds
Fixed-income securities are an investment in debt mutual funds. The ones that give the most safety include liquid funds, ultra-short funds, low-duration funds, and short-duration funds.
These funds make investments in highly rated short-term securities. They are safer than funds that take duration calls or invest in bonds with low credit ratings.
5. Public Provident Fund (PPF)
PPF investments may be included in your portfolio’s debt allocation. If you’re seeking a safe investment with tax-free returns, this is a fantastic choice. PPF has a 15-year lock-in period, making it less liquid than a hybrid mutual fund.
The rewards on PPF investments are less alluring than those on hybrid mutual funds. PPF, however, is far less risky and volatile than hybrid mutual funds. Additionally, it offers tax-free returns.
Factors to consider before investing in lump sum investment
The following are the top factors to consider before investing in lumpsum investment for your child’s education:
1. Investing a large sum of money
If you decide to invest in mutual funds in lump amounts, you may put a lot of money into them. As a result, the investment’s value increases as the market grows.
2. Mutual funds are the best option for long-term investments
Investing in mutual funds will be a better choice if you are able to save a lump sum of money for a longer length of time, such as five years or more; moreover, the rewards will be significant if you are able to preserve it for ten years.
3. Market predictions
The best time to invest in mutual funds in a lump sum is when the market is at its lowest point but showing signs of improvement and future growth; however, lump-sum investments in mutual funds should be avoided if the market is performing well and maximizing as you might find yourself in a losing situation.
Before investing in the best lump sum investment plan, investors should be aware that the funds they choose should be based on their specific goals and risk tolerance.
For instance, simply capital gains, gains plus tax advantages, etc.
