Of all the financial instruments that can make the life of a child secure, mutual funds must be the most preferred one.
Let’s see how one can take the help of mutual funds in this long-term goal.
Investment in SIPs
Experts are unanimous in their views that investment through SIPs (Systematic Investment Planning) is a time-tested method. Most important, it can begin in any state of the market since it leans heavily on cost averaging.
Any online SIP calculator will tell you that if you begin with Rs 5,000 a month and raise the SIP amount by 10% every year and continue investments for 18 years, the total corpus when your child steps into adulthood will be Rs 72.07 lakh. It’s no mean amount that can be utilised for higher education or even launching a small business.
It assumes a 12% return which is not at all difficult to achieve with equity mutual funds, especially in the long term.
The arithmetic
Let’s change the monthly investment to Rs 10,000. If you can still keep raising your SIP amount every year by 10% you would accumulate a whopping Rs 1.44 crore ready for your child when he/she turns 18.
If you can keep investing till he/she turns 21 – all other factors remaining constant – you would end up with a corpus of Rs 2.32 crore. Which means Rs 1.44 crore will swell to Rs 2.32 crore in 3 years flat.
Mutual Fund Lumpsum investment
As the name implies, lumpsum investments refer to one-time investments. You can avoid paying repeatedly every month or every week or every quarter as you do in SIP.
If you can invest when the markets are low, the returns can be more attractive.
If you invest Rs 1 lakh soon after the birth of your child, at the end of 18 years it will swell to Rs 7.69 lakh.
An initial kitty of Rs 2 lakh in lumpsum investments would make it Rs 15.37 lakh at the end of 18 years.
If the amount can be raised to Rs 5 lakh, it will provide you a corpus of Rs 38.44 lakh when your child enters adulthood.
Expert advice
Edelweiss Asset Management Company CEO Radhika Gupta has a specific advice for you. She says that parents should get the documents of a child done as quickly as possible.
“Do monthly SIPs. 2-3 funds work. Can use a large/mid index fund for broad market exposure, mid and small cap funds to add risk, and an international fund if you are thinking study abroad to manage currency,” she wrote.
Mutual Fund calculator: Nothing is perhaps a bigger dream of any family than to secure the future of their child. Mutual funds provide an optimal balance of risk and returns to plan the financial future of one’s kid. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
