How Parents Could Build ₹25 Lakh for Their Child’s Education Through Mutual Funds

A child’s education is one of those financial goals that parents often know they need to prepare for, even when the exact amount and timeline are uncertain.

The immediate expenses may seem manageable. School fees, books, extracurricular activities and other educational costs become part of the household budget. But higher education can introduce a much larger financial commitment, particularly if the child eventually chooses a specialised professional course or studies abroad.

Parents who begin planning early have more time to prepare for that expense. Instead of trying to arrange a substantial amount when admission approaches, they can gradually build a dedicated education fund.

Consider a hypothetical family with a young child. The parents estimate that they would like to accumulate ₹25 lakh for future education expenses. They decide to explore mutual funds because they want to invest regularly over several years rather than rely entirely on savings accumulated closer to the admission date.

Their first question is straightforward: How much would they need to invest every month to build ₹25 lakh?

The answer depends on several factors, including the child’s current age, the number of years available, the parents’ existing savings, the amount they can contribute regularly and the returns their investments generate.

Equally important, ₹25 lakh may not be the amount they eventually need. Education costs can rise over time, so the family must distinguish between a target based on today’s prices and the amount required when the child actually begins higher education.

This guide explores how parents could approach the goal, calculate a suitable monthly investment, use mutual funds thoughtfully and prepare for the years when the money will be needed.

1. Start by Estimating the Future Cost of Education

Before choosing a mutual fund or starting a SIP, parents should estimate the amount they want to accumulate and when they will need it.

A ₹25 lakh target can be a useful starting point, but its suitability depends on the child’s expected education path and the current cost of the intended course.

For example, the amount needed for an undergraduate degree at an Indian institution may differ substantially from the cost of a private professional course or an overseas university education.

Even within India, tuition fees, accommodation, transport, study materials and other expenses can vary considerably.

Why the target should reflect the child’s age

Imagine two families, each aiming to build a ₹25 lakh education fund.

• Family A has a child who is two years old. The family has approximately 16 years before the child turns 18.

• Family B has a child who is 12 years old. The family has approximately six years before the child turns 18.

Although their target is identical, their investment strategies may need to differ. Family A has more time to contribute and potentially benefit from investment growth. Family B has less time to accumulate the required amount and may have less flexibility to recover from a market decline.

The child’s age is therefore an important starting point for the investment plan.

Account for education inflation

Parents should also consider whether ₹25 lakh represents the cost of education today or their estimated future requirement.

If a course costs ₹25 lakh today, it may cost considerably more when a young child is ready for admission.

The following table illustrates how a ₹25 lakh expense could increase over time under three hypothetical annual inflation assumptions.

These are mathematical illustrations showing how a hypothetical ₹25 lakh expense could increase at constant annual rates. They are not forecasts of education costs or actual inflation.

The difference is significant. If a parent expects to need ₹25 lakh 15 years from now, that target may be insufficient if the intended education currently costs ₹25 lakh and its cost rises over time.

The parents should research current fees for the courses and institutions they have in mind, estimate associated expenses and revisit those estimates periodically.

The ⁠Kuberzo Inflation Calculator can help illustrate how the purchasing power of money changes over time.

SEBI’s investor education resources also emphasise defining financial goals, considering the investment horizon and accounting for inflation and risk when planning investments.

The first step is not to invest towards an arbitrary number. It is to estimate what the money may actually need to pay for.

2. How Much Should Parents Invest Every Month to Reach ₹25 Lakh?

Once parents establish a target and timeline, they can estimate the monthly investment required.

A Systematic Investment Plan (SIP) allows investors to contribute a fixed amount to a mutual fund at regular intervals. It can make a large financial objective easier to approach by breaking it into smaller, recurring contributions.

However, a SIP does not guarantee a particular final value. The actual outcome depends on investment performance, and market-linked returns fluctuate. SEBI’s SIP calculator explicitly describes its results as illustrations rather than actual returns.

For a family targeting ₹25 lakh, the monthly investment requirement changes with the number of years available.

Illustrative SIP required for a ₹25 lakh education fund

Calculations assume monthly contributions made at the end of each month, no initial investment and an effective annual return converted into an equivalent monthly rate. Figures are rounded. Returns are hypothetical and not guaranteed.

The table highlights two important points.

First, starting earlier can reduce the monthly contribution required to reach the same nominal target, because the investment has more time to accumulate.

Second, the estimated requirement changes depending on the return assumption. A higher assumed return produces a lower calculated monthly SIP, but actual investments may not achieve that return.

Parents should not choose an investment merely because it makes the monthly requirement look affordable under an optimistic scenario.

Instead, they can compare different assumptions, assess how much they can comfortably contribute and consider whether the target needs to be adjusted for education inflation.

They should also include any existing education savings in the calculation. If a family already has money invested for the child, the additional monthly contribution required may be lower.

The ⁠Kuberzo SIP Calculator can help parents compare investment amounts and timelines.

3. Why Starting Early Can Help Parents Prepare for Education Expenses

Parents often postpone education planning because the expense seems far away.

When a child is very young, school fees and everyday household costs may feel more immediate than university expenses that are more than a decade away.

However, starting early can give parents more time to build the fund gradually.

Consider a family that wants to accumulate a nominal ₹25 lakh over 15 years.

Using the illustrative 10% annual return assumption from the previous table, the estimated monthly SIP is approximately ₹6,274.

The family would contribute about ₹11.29 lakh over 15 years, with the remainder of the projected value arising from investment growth under the assumed calculation.

Now consider a family with only five years remaining before the money is needed. Under the same return assumption, the estimated monthly contribution rises to approximately ₹32,654.

The difference illustrates the role of time in financial planning.

The role of compounding

Compounding occurs when investment earnings remain invested and can contribute to subsequent growth.

Over a long period, the portfolio can grow through both regular contributions and the returns earned on the accumulated investment.

However, compounding does not mean that the portfolio will increase by the same amount every year. Mutual fund returns fluctuate, and some periods may produce negative returns.

A longer investment horizon gives the family more time to contribute and potentially benefit from growth, but it does not guarantee a particular result.

Starting early also allows room for adjustments

A parent who begins investing when the child is young may have opportunities to increase contributions as household income grows.

They can review the target, adjust the SIP and respond to changes in their financial circumstances.

By contrast, parents who begin shortly before the education expense may need to contribute substantially more each month or reconsider how the goal will be funded.

SEBI identifies investment horizon and the potential benefits of compounding as important considerations when planning for financial goals.

The practical lesson is to begin planning when the goal becomes visible, rather than waiting until the expense is close.

4. Could a Step-Up SIP Help Build a Larger Education Fund?

A fixed SIP is not the only approach available to parents.

As their income grows, they may be able to increase the monthly contribution. This is commonly known as a step-up SIP.

A step-up SIP increases the regular investment periodically, often once a year.

For example, a parent might begin with ₹5,000 per month and increase the amount by 10% each year, provided the household budget allows it.

What could a 10% annual increase look like?

Figures are rounded to the nearest rupee. The annual increase is illustrative and is not a recommendation for every household.

The monthly contribution rises as the years pass.

For parents whose incomes increase over time, this may offer a practical way to allocate part of their additional earnings towards education without needing to begin with a large monthly investment.

Why increasing contributions can be useful

A step-up strategy can help parents respond to changing financial capacity.

They may increase the SIP after a salary revision, when a loan is repaid or when another recurring expense ends.

The approach also reduces the need to rely entirely on investment returns to make progress towards the target.

However, parents should avoid committing to increases that may become difficult to maintain.

If a family experiences higher expenses, reduced income or an unexpected financial obligation, it may need to pause an increase or adjust the contribution.

How to use a step-up strategy responsibly

Parents can consider the following approach:

1. Begin with a contribution that comfortably fits the household budget.

2. Review income and expenses annually.

3. Increase the SIP when the family can afford to do so.

4. Keep emergency savings separate from the education fund.

5. Recalculate the target when education costs or timelines change.

The ⁠Kuberzo Step-Up SIP Calculator can help compare different contribution increases.

The aim is to create a plan that can evolve with the family’s circumstances rather than one that depends on an ambitious contribution schedule from the beginning.

5. Which Mutual Funds Could Parents Consider for Education Planning?

The right investment approach depends on the number of years remaining before the money is needed, the family’s ability to tolerate fluctuations and the amount already saved.

There is no single mutual fund category that suits every child education goal.

Parents should evaluate the investment objective, underlying portfolio, costs and risk level of the specific scheme before investing.

Equity mutual funds for longer horizons

Equity mutual funds invest primarily in shares and related instruments.

They may be considered for longer-term goals by investors who understand the risks and can tolerate fluctuations in portfolio value.

For parents whose child is very young, the longer horizon may provide more time to manage market volatility. However, equity investments can experience substantial declines, and a longer investment period does not guarantee positive returns.

Parents should not assume that a particular annual return will be achieved simply because they have many years remaining.

Hybrid mutual funds

Hybrid mutual funds invest across multiple asset classes, commonly combining equity and debt.

Their allocations differ by scheme, so their potential risks and behaviour can vary considerably.

A hybrid fund with a large equity allocation may experience more pronounced fluctuations than a scheme with a more conservative allocation.

Parents should understand the specific fund’s composition and investment objective rather than assume that all hybrid funds are suitable for education planning.

Debt mutual funds

Debt mutual funds invest primarily in fixed-income securities and money-market instruments.

Depending on the scheme, they may be exposed to interest-rate risk, credit risk, liquidity risk and changes in the value of underlying securities.

Debt funds should not automatically be treated as guaranteed-return products or assumed to be risk-free.

Match the investment to the timeline

The family should consider how its approach may need to change as the education date approaches.

For example:

• Many years remaining: Parents may have greater flexibility to consider investments with growth potential, provided the risks suit their circumstances.

• A medium-term horizon: The family should assess how much volatility it can tolerate and whether the current portfolio matches the deadline.

• A short period before admission: The priority may shift towards ensuring that the required money is available when fees and other expenses fall due.

These are broad planning considerations, not prescribed asset allocations.

SEBI’s investor education material explains that mutual funds have different investment objectives and risk levels, and that asset allocation should reflect the investor’s goals, time horizon and risk appetite.

Parents can explore available fund categories through ⁠Kuberzo’s mutual fund categories.

The goal is not to find a fund that promises to reach ₹25 lakh. It is to choose investments that are appropriate for the family’s needs and the time available.

6. How Should Parents Adjust Their Investments as Admission Approaches?

The years before a child begins higher education require particular attention.

When the goal is still far away, parents may have time to make additional contributions and manage fluctuations in their investment portfolio.

When admission is approaching, a substantial decline in the portfolio could create a problem if the family needs to pay fees soon.

This makes the timing of withdrawals an important part of education planning.

Review the portfolio well before the deadline

Parents should periodically assess whether the current investments remain suitable for the time remaining.

As the education date gets closer, they may need to reconsider exposure to assets whose values can fluctuate significantly.

Depending on the family’s circumstances, it may be appropriate to gradually move the portion needed soon into investments with lower volatility and appropriate liquidity.

The specific approach depends on the portfolio, the amount required and the family’s financial position. There is no universal rule that every parent must follow at a particular number of years before admission.

Avoid leaving the entire target exposed to market movements at the last moment

Suppose a family needs to pay a substantial education fee within a year.

If the entire education fund remains invested in assets that can fall sharply in value, a market decline could reduce the amount available when payment is due.

The family may then have to sell investments at an unfavourable time, borrow money or find another source of funding.

Reviewing the portfolio ahead of the deadline can help parents consider this risk before it becomes urgent.

Account for staggered expenses

Education costs may not arrive as one single payment.

The family may need money for admission, tuition, accommodation and subsequent academic years.

Parents should therefore consider when each expense will fall due rather than treating the entire education fund as one withdrawal.

Money needed soon may require a different approach from money intended for expenses several years later.

A clear withdrawal schedule can help parents decide how much should remain invested and how much needs to be readily available.

7. What If the Education Fund Falls Short of ₹25 Lakh?

Even a carefully considered plan may not reach its target exactly as expected.

Investment returns may be lower than assumed, household contributions may be interrupted or education costs may rise more quickly than anticipated.

Parents should periodically compare the fund’s progress with the amount they expect to need.

Increase contributions when practical

If the family’s income grows and the budget permits, increasing the monthly investment may help close the gap.

A step-up SIP is one way to approach this, although it cannot guarantee that the target will be reached.

Review the timeline

If the education expense can be delayed without affecting the child’s plans, a longer investment period may provide more time to accumulate the required amount.

However, parents should not assume that the admission date can always be moved. The timeline should reflect the child’s actual educational plans.

Reassess the education budget

Parents may need to compare course options, institutions, locations and living arrangements.

This does not mean compromising automatically on the child’s ambitions. It means understanding the available choices and their financial implications.

Consider the wider family financial plan

If the fund is insufficient, parents should evaluate the full range of available resources rather than making a rushed investment decision.

Existing savings, other investments and suitable funding arrangements may all form part of the discussion.

Borrowing should be assessed carefully because repayments can affect the family’s future financial flexibility.

The priority is to make an informed decision based on the actual shortfall, the time remaining and the family’s ability to fund the expense.

8. Why Parents Should Keep Education Savings Separate From Other Goals

Parents rarely plan for education in isolation.

They may also be saving for retirement, a home, emergency expenses or other family priorities.

Combining every goal into a single undifferentiated investment pool can make it harder to understand whether each objective is on track.

For example, a family may see its total investments growing and assume that it is prepared for future education expenses. But some of those investments may already be intended for retirement or another major purchase.

Give the education fund a clear purpose

Parents can track the education portfolio separately, even if their investments are held alongside other financial assets.

They should record the target amount, expected date, existing balance and planned contributions.

This makes it easier to identify whether the fund is progressing as intended.

Avoid sacrificing retirement planning without considering the consequences

A child’s education is important, but parents also need to prepare for their own future financial needs.

Using every available rupee for education may leave insufficient resources for retirement or emergencies.

The appropriate balance depends on the family’s circumstances, but both objectives should be considered in the overall financial plan.

Review the portfolio as a whole

Separate goals do not mean that every goal needs a completely separate collection of mutual funds.

Parents should still consider their overall asset allocation, the investments they already hold and whether different schemes overlap.

A dedicated education target helps with tracking; it does not automatically require a new fund for every goal.

The ⁠Kuberzo Portfolio Review can be a starting point for reviewing existing investments.

The objective is to understand how the education goal fits into the family’s wider financial position.

9. A Practical Roadmap for Building a Child Education Fund

Parents do not need to predict every future expense before beginning. They need a structured approach that can be updated as the child grows and the family’s circumstances change.

SEBI provides educational resources and financial calculators that can help investors estimate future needs, examine investment assumptions and review financial goals. Its calculators are intended for illustration and do not predict actual market returns.

Key Takeaway

Building a ₹25 lakh education fund through mutual funds can become more manageable when parents start early, estimate future education costs and invest consistently.

The monthly contribution depends on how many years remain before the money is needed. Under the illustrative assumptions in this article, a ₹25 lakh target over 15 years requires a monthly SIP of approximately ₹6,274 at a hypothetical 10% effective annual return. A five-year timeline would require a substantially higher contribution.

However, parents should not treat ₹25 lakh as a fixed target without considering inflation. If the amount represents today’s education cost, the actual requirement may be much higher when the child reaches college age.

A thoughtful plan combines a realistic target, sustainable monthly contributions, suitable investments and regular reviews. Parents can also consider increasing their contributions as their income grows and reassessing the portfolio as admission approaches.

The goal is not simply to accumulate a particular amount. It is to prepare for an important future expense without compromising the family’s wider financial security.

Disclaimer

This article is for educational and informational purposes only and does not constitute personalised investment advice. All investment projections and inflation figures are hypothetical illustrations, not forecasts or guarantees. Mutual fund investments are subject to market risks, including possible loss of principal. Parents should read the relevant scheme documents, assess their financial goals and risk tolerance, and consult a qualified financial adviser where appropriate before making investment decisions.