Investing for Children: Education Savings vs Mutual Funds, Which Is Better?

Note: This article discusses Indonesian financial products and markets. The principles apply globally, though specific products, regulations, and tax treatments vary by country.

An insurance agent at the office offers an “education insurance” product with premiums of Rp 2 million per month. “Guaranteed to be enough for your child’s college costs 18 years from now, Sir.”

The bank calls: “Ma’am, our education savings has 3.5% annual interest, higher than regular savings.”

Your friend says: “I invest in mutual funds myself for my child’s college costs, more flexible.”

Who’s right? And more importantly: which one saves the most money?

This article will break down the real numbers with mathematical calculations — not marketing promises. The difference can be hundreds of millions of rupiah. Let’s look at the real numbers for higher education costs in Indonesia (2026):

S1 (Undergraduate) College Costs (4 Years Total)

State Universities (PTN - Perguruan Tinggi Negeri):

• ITB, UI, UGM: Rp 30-50 million (total 4 years, including entrance fee and tuition)
• Regional PTN: Rp 20-35 million

Private Universities:

• Top Tier (Prasetiya Mulya, UPH, Binus): Rp 100-200 million
• Mid Tier: Rp 60-100 million

Studying Abroad:

• Australia/Europe: Rp 500 million - 1 billion (tuition + living cost)
• US/UK: Rp 800 million - 1.5 billion

These numbers are today’s prices. If your child was just born, college starts 18 years from now. With education inflation of 8-10% per year, costs could rise 4-5 times.

Example:

• PTN that’s now Rp 40 million → in 2044 could become Rp 160-200 million
• Top tier private Rp 150 million → could become Rp 600-750 million

Scary? Yes. But with the right investment strategy, this is achievable.

Three Options Usually Offered by Banks and Insurance

1. Bank Education Savings

What it is: A regular savings product with an “education” name. Sometimes bundled with simple life insurance.

Return: 2-4% per year (almost the same as regular savings).

Pros:

• Safe (guaranteed by LPS / Lembaga Penjamin Simpanan / Deposit Insurance Corporation up to Rp 2 billion)
• Liquid (can withdraw anytime)

Cons:

• Return far below education inflation (8-10% per year)
• Your money’s value erodes every year

Mathematical example: Save Rp 1 million/month for 15 years in education savings with 3% annual interest.

• Total deposits: Rp 180 million
• Final value with interest: Rp 220 million
• But with 9% education inflation, real value: equivalent to Rp 60 million at today’s prices

Conclusion: Your money grows slower than college cost increases. You’ll still fall short.

2. Education Insurance (Unit Link/Endowment)

What it is: A bundled life insurance + investment product. Part of your premium goes to insurance, part is invested.

Return: Projected 6-10% per year (but actual results are often lower).

Pros:

• Parent life protection — If a parent dies, education costs are still guaranteed
• “Set and forget” — You just pay regular premiums

Cons:

• Very high costs: Agent commission 30-50% of first year premium, acquisition costs, administration costs
• Low net return: After all costs, effective return is often only 3-5%
• Lock-in period: Hard to withdraw without penalty before maturity (10-20 years)
• Not transparent: Hard to track how much goes to investment vs how much is deducted for fees

Mathematical example: Premium Rp 2 million/month for 15 years (total deposit Rp 360 million).

• Agent projection: final value Rp 600 million (assuming 8% return)
• Reality after costs: final value Rp 450 million (effective return 4-5%)

Compare with option #3 below.

3. “Education Mutual Funds”

What it is: Actually just regular mutual funds with an “education” label for marketing. There’s no difference from other stock/balanced/money market mutual funds.

Return: Depends on type:

• Equity mutual funds: 10-12% per year (historical)
• Balanced mutual funds: 7-9% per year
• Money market mutual funds: 4-5% per year

Pros:

• Higher returns than savings and insurance
• Lower expense ratio (1-2% vs 5-10% unit link insurance)
• Liquid (can be redeemed T+2 to T+7)

Cons:

• No life protection — If parent dies, investment is only what’s been accumulated
• Volatility — Value can go up and down, especially equity mutual funds
• Requires discipline — You have to regularly deposit yourself (not forced like insurance premiums)

Best Option: DIY Investment (Mutual Funds + Separate Life Insurance)

nabung.id strategy: Separate protection and investment functions.

Component 1: Pure Life Insurance (Term Life)

Purpose: If a parent dies, the heir (child) receives death benefit money for education costs.

Product: Term life insurance, not unit link.

Sum assured (UP - Uang Pertanggungan): At least equal to target education costs. Example: if target is Rp 200 million, buy UP Rp 200-300 million.

Premium: Much cheaper than unit link.

• Example: 30-year-old male, UP Rp 300 million, 20-year period → premium around Rp 500 thousand - 1 million per year
• Compare with unit link premium of Rp 2 million per month (Rp 24 million per year)

Products to check:

• Sequis Term Life
• AXA Mandiri Proteksi Sejahtera
• Allianz Smartlink Flexi Account (choose term rider only, not unit link)

Component 2: Regular Mutual Fund Investment

Purpose: Accumulate education fund.

Allocation strategy based on time horizon:

Child 0-8 Years Old (Time Horizon >10 Years)

• 80% Equity Index Mutual Fund (target return 10-12% per year)
• 20% Bond/Money Market Mutual Fund (stability)

Example products:

• Index mutual funds: Index Mutual Funds like Syailendra Equity Opportunity Fund, Sucorinvest Equity Fund
• Bonds: BNP Paribas Pesona, Sucorinvest Bond Fund

Child 9-13 Years Old (Time Horizon 5-10 Years)

• 50% Equity Mutual Funds
• 50% Bond Mutual Funds/SBN

Start reducing risk because horizon is shorter.

Child 14-17 Years Old (Time Horizon <5 Years)

• 20% Equity Mutual Funds (or eliminate altogether)
• 80% Money Market Mutual Funds or SBN

Priority: preserve capital. Money is almost ready to be used, cannot drop drastically.

Component 3: Monthly Auto Debit

Use the auto-invest feature on mutual fund platforms (Bibit, Bareksa, IPOT) to automatically save every month.

This is important because without the “force” of premiums, many people aren’t consistent.

Mathematical Comparison: Three Scenarios

Assumptions:

• Parent starts investing when child is born
• Target: college cost Rp 200 million (at today’s prices), with 9%/year inflation → need Rp 920 million in 18 years
• Deposit: Rp 2 million/month for 18 years

The 10% mutual fund return assumption is the historical average over the last 20 years for equity mutual funds. Not guaranteed, but realistic for long time horizons.

Conclusions from the table:

1. Education savings definitely won’t be enough
2. Education insurance is better than savings, but still not optimal
3. DIY (mutual funds + term life) provides 2x higher value with lower total cost

Whose Name Should the Investment Be Under? Parent or Child?

Common question: Does the investment have to be in the child’s name?

Answer: Not required, and there are trade-offs.

Option 1: Under Parent’s Name

Pros:

• More flexible (parent has full control)
• If child gets a scholarship or doesn’t go to college, money can be allocated for other purposes
• Simpler taxes (combined with parent’s SPT / tax return)

Cons:

• If parent dies, becomes part of estate (claim process can be lengthy). Read: Managing Inherited Investments

Option 2: Under Child’s Name

Pros:

• Clear purpose (legally belongs to child)
• If parent dies, child as direct heir has access

Cons:

• Child under 17 needs parent/guardian approval for account opening
• Separate taxes (child needs own NPWP if investment value is large)
• When child becomes adult (18 years), child can access and use money as they wish (risk if child isn’t wise)

nabung.id recommendation: Under parent’s name, with clear mental accounting (“this account is specifically for child’s education”). Combine with term life insurance where the beneficiary is the child.

What to Do Starting Today?

Step 1: Calculate Target Education Fund

Use an inflation calculator:

Target = Today's_Cost × (1 + inflation)^years

Example: PTN Rp 40 million, newborn child (18 years away), 9% inflation

Target = 40 million × (1.09)^18 = Rp 184 million

Step 2: Calculate Required Monthly Deposit

Use a future value calculator (available at Bibit, Bareksa, or Excel).

Assuming 10% annual return, target Rp 184 million in 18 years → monthly deposit around Rp 400 thousand.

Step 3: Buy Term Life Insurance

• UP at least equal to target education fund
• Period until child graduates college (18-22 years)
• Premium around Rp 500 thousand - 1 million per year

Step 4: Open Mutual Fund and Set Auto Invest

• Choose platform: Bibit, Bareksa, or IPOT
• Choose mutual fund according to time horizon (majority equity if still >10 years)
• Set auto debit from bank account on a specific date
• Don’t tinker — let compound work

Guide to choosing mutual funds: Index Mutual Funds

Step 5: Rebalancing Every 3-5 Years

As the child gets older, reduce equity allocation, add bonds/money market. This protects value as withdrawal time approaches.

Read: Portfolio Rebalancing

Conclusion: Don’t Buy Bundled Products

Investment principles for children:

1. Separate protection and investment — Pure life insurance (term life) + mutual funds, not unit link
2. Start as early as possible — Compound interest needs time
3. Adjust allocation to time horizon — The closer to college, the more conservative
4. Discipline > timing — Auto invest is more important than guessing when to buy
5. Review annually — Make sure you’re still on track

Education savings and education insurance aren’t the worst options—just not optimal. If you’re not confident managing yourself, you can use bundled products. But understand that you’re paying a convenience fee that’s expensive (hundreds of millions over 18 years).

For parents willing to learn and be disciplined, DIY investing can save 40-60% in costs and the final result is 2x larger.

A child’s education fund is too important to leave to products whose fees eat into your returns.

References

1. Badan Pusat Statistik. Consumer Price Index and Inflation. bps.go.id
2. Ministry of Education, Culture, Research, and Technology. Higher Education Database (Pangkalan Data Pendidikan Tinggi). pddikti.kemdikbud.go.id
3. Otoritas Jasa Keuangan. Consumer Guide and Education for Insurance Products. sikapiuangmu.ojk.go.id
4. Directorate General of Taxes. Tax regulations related to investment and asset ownership. pajak.go.id
5. Historical mutual fund return data available on platforms like Bareksa, Infovesta, and investment manager reports.

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