Parents leave no stones unturned in securing their child’s future. They try the best of their ability to fulfil the requirements of their child, be it daily needs or even education needs.
But, with higher inflation and rising cost of living, traditional financial products such as fixed deposits and savings bank accounts may not suffice to meet your child’s education or other expenses (including marriage cost, setting up a business and so on).
For instance, a postgraduate degree which currently costs around Rs 10 lakhs, could possibly increase to around Rs 42 lakh in 15 years (assuming 10 percent inflation). Therefore, besides investing in traditional options, you need to look at other investment avenues that can deliver inflation-adjusted returns.
Embracing the route of mutual funds as a child education plan, can help in this regard and fund your child’s school or higher education fees.
How to Use Mutual Funds to Secure Your Child’s Future?
• Get Ready for The Head Start
When you start planning for your child’s education, it might be difficult to imagine your young, school-going kid as a college-goer. Hence, there arises the tendency to postpone the planning by a few years, thinking that you can do it at a later stage.
But, it is better to start investing early. For instance, if you start investing when you marry, you may have as many as 20 years ahead of you. However, if you start when your child is 5 or 8 years old, then you will be left with barely 10-12 years. The more the years you have, the less you need to set aside (on a monthly basis).
Moreover, with the power of compounding, mutual funds can make a huge difference in the final sum of your investment.
• Set A Goal Before You Start Investing
When investing in mutual funds, you need to have an end goal in mind. For example, when preparing for a long-term goal like education, it is better to plan for the education costs at a projected level and then select the mutual fund that can best cater to this need.
Investing in a good mutual fund as part of your child education plan portfolio will not only cover the future education expensesbut also decrease the burden on your monthly budget.
• Use the Systematic Investment Plan (SIP) Method
SIP is the most favoured method of investing in mutual funds. Through this process, you can invest in a mutual fund scheme that aligns with your goal. The SIP method requires you to invest a certain amount regularly and helps you to ride out the market fluctuations.The advantage of SIP investment is that you can fix the amount you are comfortable in investing.
Mutual Funds Are the Ideal Route for Multiple Reasons:
• Seasoned fund managers manage the investments on your behalf after constant analysis, research, deliberation, and discussion
• Mutual funds are well diversified, hence providing a cushion from concentration risk
• These investmentsprovide the kind of flexibility that is vital for an education fund
• Investment in mutual funds proves to be an ideal choice since they generate the highest returns in the long run. (*returns on mutual funds are directly linkedtothe stock market and thus depend on their returns)
• A pure equity mutual fund investment can give you returnsof around 10-12 percent or even higher
The biggest advantage of using mutual funds for your child’s future is that:
As you get closer to the point in time when you need the money to fund your child’s education or marriage, you can simply migrate from a high-return, high-risk, mutual fund into one that’s slightly less risky.
Steps to Follow:
1. Set up SIPs for the amount you are comfortable with
2. Based on your investment horizon determine asset allocation
3. Review the fund’s investment performance and asset allocation periodically
4. Review and increase your SIP amount every year
5. Before payout, move the required amount of funds into a liquid fund
Summing Up:
With the emergence of multiple mutual fund houses and evolution of technology, investing in mutual funds has become hassle-free. Mutual funds make realising the superior goals of life, like securing your child’s future much easier. They prove that if you are a disciplined investor (who is willing to take risks), it is more than possible to build a large corpus!