Invest in mutual funds for your child’s future

Investing for your children through equity mutual funds will help you build a sound corpus for their education and future


Saving for their children’s future is every parent’s priority. And with increasing costs of education, it is imperative for parents to begin saving as soon as the child is born. Since a child gets several years before he/she needs a large chunk of money for higher education or marriage, parents should look at systematic investment plan (SIP) in equity funds for building a large corpus.

Depending upon your income and factoring in your monthly expenses, you should be able to arrive at an amount suitable for investing in mutual funds for your child. SIP is the best way to invest in the same.


Here is a step-by-step guide on the average expenditure expected and why parents must start saving:

WHEN TO INVEST?

It is said that the earlier you invest, the better returns you gain. When investing short-term, it is advised to invest in debt and balanced funds. For instance, if you are saving for your child’s schooling, and plan to hold on to the funds for 3-5 years, investing in debt and balanced funds could give you a return of 7-8 per cent.

When investing in equity mutual funds, especially keeping a child’s higher education in mind, one must hold on to their investments for at least 10-15 years.

One shold invest at regular intervals. In most Indian families, the child is given money during milestones in their life. Financial planners suggest that rather than spending such funds, all monetary gifts that the child receives should be invested in the child's name, preferably in equity mutual funds. Investing those funds in a good mutual fund would be a wise decision for the longterm financial benefit. This is because an occasional inflow in those funds, over several years, is almost sure to leave a large corpus when the child grows up.

CHOOSE THE RIGHT PLAN

The core of your investment portfolio should ideally be relatively lower risk diversified equity funds with smaller investments made into various small and midcap funds. If you have a moderate to aggressive risk appetite, you should be investing mostly midcap schemes and smallcap schemes. To invest money for an extremely short term, you can invest in liquid funds. When in doubt, it is advised to speak to experts from the field and get clarity. The ground rule here is to understand your long-term goal, decide on a fixed amount to be invested, and do so diligently in a plan that suits your end goal.

CALCULATE RIGHT

Education is getting expensive by the day. While saving for their children, parents must factor in various expenses right from childhood — tuition fees, school fees, material and travel costs, etc. Then, one must factor in costs of general living, marriage, etc. While calculating the cost of education, especially higher education, it’s important to remember that in India, the long term average annual inflation rate for education cost is about 8-10 per cent. For instance, if your child may pursue medicine, the current average cost is set at Rs 50 lakhs to Rs 75 lakhs. In the next 10-12 years, this may cross 1.5 crores. Hence, keeping this in mind, it is advised to invest a fixed amount in equity mutual funds on a monthly basis.

There are online calculators which could give you an estimate about these costs and the amount that is required to be invested. It is always better to identify goals, quantify them to get their future value, and putting together an investment plan to achieve each goal.