HOW TO PLAN YOUR CHILDS FUTURE WITH MUTUAL FUNDS
We all do investments in Mutual Funds for the whole and sole reason that is to care about future. Once you get have dependents in your life, your overall financial responsibility would increase substantially. In order to safeguard you child’s education needs in the future, you would need to start investing now. Your aim should be to beat the market inflation by investing in high return instruments. Inflation is the reason which makes us struggle so much because that is one of the main factors responsible for the rising costs of services in the market.
Today an engineering course on an average costs about 6 lakhs and by the end of 2033, it may cost about 33 lakhs while a medical degree today costs about 12 lakhs, would cost around 65 lakhs by the same time. So how can you plan your child’s future in a smart way? The answer to this is planning your child’s future in all terms by investing in mutual funds. So before proceeding let’s understand what the basic features of mutual funds are and how can they be useful.
If you wish to know about it in detail, you can do so here.
With a minimum cost of 500 INR a month, one can start investing in mutual funds without straining or compromising on current expenditures.
Liquidity of meeting expenses
Redemption of funds is very much possible but is not advised if you wish to grow your money.
Dynamic investing to grab the opportunities
Mutual funds offer a dynamic option in terms of quick switches and a close market watch on your behalf. It doesn’t matter if you have invested in equity or income or liquid funds, you can instruct the fund managers to switch your portfolio to a stream which seems to give a better return prospect.
Scheduling or administrative convenience
The profitable returns from your SIP’s equity stakes or liquid funds can be re-invested in any other form to maintain the pace of multiplication of your wealth.
Safety in operability
In the case of accidental death, it offers nomination so that in such cases the wealth rights can be transferred to the nominee.
Steps to set up and maintain the education funds by mutual funds
- Joint account for minors which can be operated by parents till the age of 18
- Set up SIP’s for maximum amount which is comfortable
- Revive the SIP amount once a year and try to invest more every year
- Allocate the asset based on current investment horizon
- Review investment tool and its performance and assign the allocation of the asset periodically.
- Shift the required amount of money to liquid funds before its withdrawal.
MINIMUM COMPOUNDED AMOUNT FOR YOUR CHILD’S FUTURE
For your child’s uncompromised quality education, the average cost parents should save today is around 75 lakhs. Maybe this may seem to be a large number but few years down the line it will not seem so. Considering inflation and hike in commodity market every day it seems like having 75 lakhs ready for your child’s future is necessary. Education is such a field that along with inflation its value increases double to that of commodity expenses. Medical, Engineering, Biotechnologies and other fields have enormous expenditures.
EQUITY- THE SAFEST AND SMARTEST OPTION
Investing in Equity funds is the safest and most smartest way to invest, as it provides handsome returns for your child’s education.
Investing independently in Equity funds for such a long tenure i.e. till your child turns 18 you need to keep track of your invested schemes. Their performance cannot be left unattended. You need to keep a check on the tools and schemes and remove the ones which are under performing. If a scheme is about to suffer a downfall or is expected to underperform in the progression period; the appropriate action of withdrawal or investing in other schemes should immediately be taken (either you can do it on your own or let the fund manager do it for you). If you cannot be regular in keeping the track record of the same you can always hire financial advisors who can help you out regarding the current schemes and update you with the new schemes.
INVESTING IN DEBTS
Planning and securing your child’s future by mutual funds is the only objective. So raising the funds in every possible way and later using it for securing their future is important. So investing in debts can also be a viable option.
So how does investing in debts work?
- The interest rate risk is managed by the portfolio maturity of the fund at the intermediate level and does not relate to timing in market interest rates.
- The prudent balance is maintained between government securities and corporate bonds and ensures adequate diversification through strict limits on single company exposures.
- An equity research is done, to help identify the strongest issuers of debt and discover undervalued sectors.
- A liquidity norm is introduced to ensure that the portfolio can be liquidated at any time to access redemptions.
I have tried to cover some of the common ways by which you can ensure your child’s future is safe. If you wish to add anything then please feel free to include your suggestions in the comments section. Happy investing !!