Mutual Funds remain an ideal investment instrument to meet the escalating cost of higher education.
Mutual Funds schemes are basically classified into two broad types: debt and equity.
Equity mutual funds are suitable to address the needs of an investment option for higher education.
Considering every investment has a starting point, the basic rule is to start as early as possible to reap the maximum benefit in the long run. Ideally, it should be started as early as a minimum of 15 years ago.
Among equity mutual funds there are various types such as large-cap, mid-cap, small-cap, sectoral and international.
While investing in mutual funds there are certain key points to keep in mind such as:
Early beginning: A systematic investment plan (SIP) for an equity mutual fund can help generate adequate returns in the long run. An equity mutual fund can also help to tide over high inflation prices if kickstarted early as a long tenure acts as a cushion against all market cycles.
Power of compounding: This involves earning interest on the principal amount as well as accumulated interest. Through the power of compounding, an early investor is most likely to address the escalating cost of education in the future.
Diversification of assets: This investment strategy relates to spreading the assets across various asset classes so that the susceptibility to any one particular asset is minimum. Exchange-traded funds (ETFs) and mutual funds are simple solutions to diversify the investment portfolio. A simple technique is to look out for asset classes with low or negative correlations, so if one faces a dip, the other tends to witness a surge.
Timely assessments: An investor should consider the assessment of the portfolio as an annual exercise. This provides a fair idea about the performance of various investments and the need to shift from one investment to another. Moreover, shifting investments indirectly paves the way for compounding. A suitable technique could be to shift to a debt fund or other investment tool such as bonds, which are comparatively free of risks in the last stage of the tenure. This could be undertaken when a maximum of three-four years are left.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.