Child Mutual Funds: Invest in MF’s child plan for the better future of your child, know what is special in these schemes
5 min read
Child Mutual Funds: Generally, every new generation in India has been in a better position than their parents’ generation, be it socio-economic aspect or financial situation. This is also possible because most Indian parents focus on financial planning for a better future for their children.
While expectations and needs grow over time, so does the cost of realizing those plans, especially when the impact of inflation on essential expenses like higher education is considered. In earlier times, Indian parents used to save to meet traditional goals like marriage of children and they preferred National Savings Certificate (NSC) or long-term Fixed Deposit schemes for investment.
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At the same time, today’s parents are prioritizing many goals for their children even before marriage – such as higher education, be it engineering and medical or MBA and international studies. The expenses incurred on these have also become as expensive as the cost of marriage. Now parents need to invest wisely in such options, which not only help them increase their wealth, but also accumulate enough corpus to meet the needs or ambitions of their children. Also ensure that their investment keeps pace with inflation and helps their children move forward.
Rising cost of education is a serious challenge
Suresh Soni, CEO, Baroda BNP Paribas AMC, says that when it comes to fulfilling their child’s dreams, parents are not willing to compromise on quality. On the other hand, the cost of education is skyrocketing. Inflation in education services is running almost twice as fast as the Consumer Price Index numbers announced by the government. With an annual inflation of about 11 per cent in college fees, the cost of a good MBA program has increased by about 8 times in the last 20 years. Such a rapid increase in the cost of education means that for many families, spending on their children’s education has become a financial burden. Therefore, if it is not planned well, then the problems can increase a lot and children may miss opportunities. He says that unlike most expenses, the cost of education is a necessary expense.
Equity is a better option for wealth creation in the long term
Parents saving for their children’s future need investment options that can beat inflation. Historically, equity has proven to be the asset class with the highest real returns over a period of a decade or more. Research shows that long-term investments in equity can generate returns that no other asset class can deliver. Due to the power of compounding, even small monthly investments can build a substantial corpus over time. For example, an investor investing just Rs 9,000 monthly in a well-performing equity fund can get a corpus of over Rs 1 crore over 20 years.
Benefits of Child Plan in Mutual Funds
Children schemes offered by mutual funds can be a better option for financial planning for children. These funds provide an ideal mix of disciplined investment and long term growth. Most mutual fund schemes for children come with a lock-in period of 5 years or when the child becomes a legal adult, whichever is earlier. This promotes long-term investment. This feature allows fund managers to invest for a long period with a strong strategy and confidence. Investments in the long term also benefit from the power of compounding, which can multiply the investors’ money.
Suresh Soni says that due to the lock-in period in the child plan of mutual funds, these plans encourage disciplined long-term investment. On the other hand, professional fund managers select strong stocks on the basis of research. Both these things together can increase an investor’s capital rapidly by taking advantage of the compounding provided by the equity market. At the same time, if you also opt for step-up SIP in this, then the amount invested can increase manifold, while all the dreams of your children can be fulfilled by this.
How to start SIP and Step-UP SIP
Starting early and investing regularly can be a winning combination for parents who want to save enough for their child’s future. A Systematic Investment Plan (SIP) is a great option to invest in Children Funds offered by mutual funds, where a fixed amount is invested on a monthly basis.
With Step Up SIP, you can gradually increase your monthly contribution. As your income increases, you can increase your SIP amount accordingly. This will help you create a large fund by the time your child’s needs begin.
Flexibility to invest additional funds
Children’s plans also offer the facility to add lump sum investments. Be it an annual bonus or a birthday gift from family. These contributions can go directly towards building a strong fund for your child’s future. Such a facility ensures that any additional inflow can be effectively used to grow your child’s financial corpus, helping them reach their dreams and giving them peace of mind.
Through long-term investing in equities, parents can make an investment that grows along with their love for their children. Thoughtful and disciplined financial planning today can make a huge difference tomorrow, helping children achieve their dreams without facing any hassles.
Investing in child plans of mutual funds is not just about money, but it is also a testimony of the hope, love and support that parents have for their child’s future. So take a step towards fulfilling those dreams – start investing wisely for a bright future as per your child’s potential.
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