Raising one’s child to become the best version of himself/herself is the biggest responsibility of the parents. From nutrition, healthcare to education – you want to provide the best in everything to your child.
Apart from that you also have to make sure that their future is secured.
And the only way to achieve this mammoth task without hurting your own financial future is by investing through mutual funds.
1. Goals for your Child’s Future
The first step towards investing is to know what you are investing for, i.e. what is your investment goal. Now, as parents, you need to have financial goals set for your child.
For example, you have to save for your child’s school admissions, his or her college/higher education, maybe for a degree from a foreign university, his/her marriage, etc. Try to figure out what kind of money you would need to achieve each of the goals.
Say, for your child’s school admission you need to save Rs 2 lakh; or Rs 80 lakh for your child’s higher education, etc. This way you can turn your dreams for your child into financial goals.
2. Choose the right fund and start saving towards the goal
Since you know your goals, you should start saving towards them. Now, it is extremely important to choose the right mutual fund as per your goals.
For example, let’s suppose you would need Rs 2 lakh for your child’s school admission in two years. This is a short term goal, for which the main focus is capital preservation. Ideally, you should invest in Short Duration Debt Funds or FDs to achieve the goal on time.
Meanwhile, you might also want to save for his/her higher education. This is a goal that is at least 17 or 18 years away. And also, due to inflation, the amount that you would need would be much higher than it is today.
For example, an MBA course at a top-rated university costs around Rs 20 lakh today. And at the 10% annual inflation rate the same course would cost Rs 80 lakh in 15 years.
So to achieve this goal, you need to invest in equity mutual funds as they are your best bet to get inflation-beating returns consistently over the long run.
3. Start investing through SIPs to save towards your goal
The easiest way to get into the habit of disciplined investing in mutual funds is by starting a SIP.
Through a SIP, you put a fixed amount of money every month towards your mutual fund investment, which over the years helps you achieve the target amount in time.
For example, say you want your child to attend a top-rated B-school and for that, you need to save Rs 80 lakh in 15 years. If you choose to invest in a mutual fund through a SIP, then your monthly SIP amount would be Rs 16,000 every month to reach the goal on time (assuming 12% average annual returns)
4. Increase your SIP investments periodically
As every year your income and salary increases, you should also increase your SIP investments every year. This can be a fixed 10% every year or as per the percentage of increment in your salary each year.
Now, this timely boost every month can make a huge difference in the final amount that you will receive. Let’s explain this with a two case scenario.
Say you want to save Rs 80 lakh in 15 years to be prepared to send your kid to B-school. In the first case, you keep investing Rs 16,000 per month all through to reach the goal in time.
Meanwhile, if you keep increasing the investment amount by 10% every year, you can save Rs 80 lakh in 12 years. (In both the cases the return amount assumed is 12% p.a., though there are no guaranteed returns.)
And if you reach the goal early, you will be much well prepared when it’s finally time for your kid to go to B-school.
5. Do not stop/skip your SIP investments
To achieve a financial goal on time, this is the most important thing to follow. That is, never stop or skip your SIP investment. Remember, one wrong step can completely jeopardize your child’s future.
The most important future goals of your children are time-bound, like your child’s school, college education, or higher education.
So if you skip, miss, or stop your investments midway meant for such goals, it would mean you might not have enough funds when it’s time to go for college/university. So be regular with your investments.
However, if you had to stop investing for some reason, make sure to fill that gap later by adding money later.
Ensuring that your child’s future is well secured is one of your biggest responsibilities. There are several milestones that they need to achieve at different ages. And you need to be financially prepared to help them achieve each of the goals.
So set the goals, determine the timeframe, and start investing in the right mutual funds.