Mutual Funds vs FD: SBI MF expert explains which investment tool is better for child education planning

Mutual Funds vs FD: When it comes to investment post-marriage, child investment plan is the most common tool that comes to one's mind. However, if we go by the experts' views, while investing, one needs to look at the returns and the rate of inflation. If the returns are higher than inflation, then only one will be able to meet one's investment goal. Same rule needs to be applied while investing in child education planning. Generally, people invest in traditional insurance or bank fixed deposit (FD) for child education. However, the way FD returns have gone down in recent years, it become important to know for an investor which type of investment tool to choose, traditional tool or equity mutual funds?

Speaking on the calculations involved while choosing an investment tool for child education planning DP Singh, Chief Business Officer at SBI Mutual Fund said, "When we go for investing, we compare the returns given by the investment tool with the normal rate of inflation. but, in the case of child education planning, there is a twist. Generally, we take around 5 per cent inflation growth during finding out the viability of an investment tool while deciding whether it will help us meet our investment goal. But, in the case of child education, it has to be 10 per cent because the education inflation is normally double of the overall inflation. So, one should keep the inflation growth at 10 per cent while comparing the returns given by the investment tool and the inflation growth while deciding child education plan."

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Commenting upon mutual funds vs FD Singh said, "In bank fixed deposit, one can get maximum of 5 per cent return in three-year FD. After three years, it may go further down as banks can change the FRD interest rate after that period. So, FD return is much lesser than the education inflation and after ten years, its return may further go down. So, bank FD is definitely won't be able to beat the education inflation during the investment period."

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SBI Mutual Funds expert said that mutual funds are better choice for the child education planning and one should go for them instead of traditional bank FD. Singh also advised investors not to fall prey to insurance plans customized for child education. He said that when it comes to investment, one should go for an investment plan. Insurance is not an investment tool and it has to be taken as an insurance tool only.