My daughter is 10 years old. I was thinking of investing in mutual funds to fund her education later. How should I go about it?

Investing is all about saving and mobilising your money in a sensible manner that will help grow your money in the years to come. Its great that you’re planning to invest in mutual funds as it has rewarded investors with stellar returns in the past few years.

Given your daughter’s age, you have 5-9 years to save. While this is a decent timeframe, it is not enough to invest in riskier assets, so for now steer clear of risky investments. Thus, I would suggest you invest 50% of your amount to be invested in debt and 50% in stocks. Instead of investing in equity funds that invest the entire corpus in stocks, I’d suggest you invest in balanced funds that invest in a mix of stocks and bonds.

If you have a low-risk appetite, then monthly income plans (MIPs) from mutual funds can be a good alternative for you. These funds put only 15-20% of their corpus in equities and are therefore, less volatile than equity or balanced funds. However, you must aware that the returns are also lower than those of equity funds.

Historically, equity funds have delivered compounded annual returns of almost 12%, while balanced funds have given 10.5% and MIPs have given around 8.85%.

For the debt part of the investment portion, start a recurring deposit that would mature around the time your daughter is scheduled to apply for college. If you are in the highest 30% tax bracket, avoid recurring deposits and start an SIP in a short-term debt fund. These funds will give nearly the same returns as fixed deposits but are more tax efficient if the holding period is over three years.

But that’s not all. You must also review the progress of your investments from time to time and alter things keeping in mind inflation as well as the cost of education.