Structuring a portfolio for your child's higher education

This is the goal with the least negotiable deadline in personal finance. A retirement can be postponed by two years. An admission cannot. That single fact should drive every decision here — and it is the one most people override, usually within two years of the date.

Start with the number, and inflate it properly

Do not use a headline inflation figure. Education inflation in India has run well above general CPI for a long time, and the gap compounds over the fifteen years you have.

Work it out in three steps:

1. Today's cost of the actual course, not a generic figure. A private engineering degree, a five-year medical programme, and a foreign master's are three completely different numbers.
2. Inflate at 8–10% a year, not 5–6%. Check the fee history of two or three real institutions if you want to sanity-check the rate.
3. Add the parts nobody budgets for — accommodation, living costs, one preparatory year, and for overseas study, the currency. A rupee that depreciates 3% a year against the dollar over fifteen years adds materially to the bill, which is a real argument for holding some international exposure inside an overseas-education goal.

A ₹15 lakh course today at 9% inflation is roughly ₹55 lakh in fifteen years. Planning against ₹25 lakh is not conservative; it is a shortfall you have already agreed to.

The change you need to know about

Children's funds sat in SEBI's Solution Oriented category, alongside retirement funds, typically carrying a five-year or until-majority lock-in.

Under SEBI's revised categorisation, the Solution Oriented category has been discontinued — the regulator's stated reasoning being that these schemes' portfolios often looked no different from ordinary equity or hybrid funds, which made the category label misleading rather than useful. Existing schemes have been required to stop accepting fresh subscriptions, with a replacement structure offering automatic glide-path rebalancing.

Two practical consequences:

• If you hold a children's fund, read the AMC's communication about what happens to your existing units and any running SIP. Do not assume the SIP is still going in.
• If you were about to buy one, you do not need it. The lock-in was the product's one genuine feature — it stopped you raiding the money — and you can achieve the same discipline with a separate folio, a separate goal, and the decision not to touch it.

⚠️ This transition was in progress at the time of writing. Verify the current status of any scheme you hold with the AMC before acting.

The structure: a glide path, not a portfolio

The mistake is to pick an allocation and hold it for eighteen years. The correct shape changes as the deadline approaches, because the cost of being wrong rises as the time to recover falls.

• Years 18 to 8 remaining — 70–80% equity. This is the compounding phase and the only period long enough for equity to do its job. Diversified equity funds or a broad index, plus a modest international sleeve if the course may be abroad.
• Years 8 to 4 — glide to roughly 50% equity. Move in annual steps, not one large switch, and use a systematic transfer plan rather than a lump-sum move.
• Years 4 to 2 — 20–30% equity at most. A 40% equity drawdown two years out cannot be recovered before the fee is due.
• Final 24 months — effectively nothing in equity. Short-duration debt, liquid funds, or a fixed deposit maturing on the right date. At this point you are protecting a number, not growing it.

The last step is the one people refuse, because the market is usually doing well and moving to debt feels like leaving money on the table. The asymmetry is the argument: the upside of staying in equity for the last two years is a slightly larger corpus; the downside is a child not going to the college they were admitted to.

Practical mechanics

Whose name? Investing in the child's name (with a parent as guardian) means that at 18 the money legally becomes theirs and the folio must be transitioned to their own KYC and bank account — a real administrative step, and a real transfer of control. Investing in your own name with the child as nominee keeps control and is simpler. Most families are better served by the second unless there is a specific reason otherwise.

Keep it in its own folio. A goal mixed into your general portfolio is a goal that gets borrowed from. See goal-based investing.

Step the SIP up annually. A step-up SIP rising 10% a year roughly tracks both your income growth and education inflation, and it is far more powerful than picking a better fund.

Sukanya Samriddhi, if applicable. For a girl child, SSY offers a government-backed rate with tax advantages and a long lock-in. It is a debt instrument, so treat it as part of the fixed-income side of the glide path rather than as the whole plan — a portfolio that is entirely SSY will struggle against 9% education inflation.

Insure the plan, not just the corpus. A term policy on the earning parent, sized to cover the remaining shortfall, is what makes the plan survive the one event that would otherwise end it. This is the cheapest part of the whole exercise and the most often skipped.

Pitfalls to avoid

• Using general inflation. Education inflation is higher, and the error compounds for fifteen years.
• Staying in equity to the end. The deadline is fixed; the market is not.
• Buying a child-branded plan for the branding. The label is marketing; read the portfolio and the costs like any other fund.
• Confusing insurance with investment. Child endowment and ULIP plans bundle a poor return with an opaque cost. Buy term insurance and invest the difference.
• Investing in the child's name without thinking about age 18. It becomes their money, legally and completely.
• Not writing the target down. A goal without a number is a savings habit, and savings habits get raided.
• Forgetting tax on the exit. Redeeming a large corpus in one financial year concentrates the capital gain; spreading redemptions across two years can use two years' worth of the exemption.

Key takeaway

Education is the goal with an immovable date and an inflation rate well above the headline, so plan against 8–10% education inflation on the actual course cost, plus living expenses and currency if it may be abroad. Then run a glide path rather than a fixed allocation — high equity while the horizon is long, stepping down every year, and essentially no equity in the final two years, because the upside of staying invested is a slightly bigger corpus and the downside is missing the deadline. Note too that SEBI has discontinued the Solution Oriented category that children's funds sat in: check what has happened to any such scheme you hold, and understand that its lock-in — the one feature worth having — is something you can replicate with a separate folio and a decision.