Brighten Your Child’s Future With Mutual Funds

As parents, we understand the profound importance of our children’s wellbeing and development. We dream of nurturing their talents, equipping them with quality education, and empowering them to pursue their passions. Imagine your child, brimming with excitement, sharing their dreams of becoming a doctor, an artist or an astronaut. Their eyes sparkle with potential, and you want to do everything you can to help them achieve those dreams, including financial security. Planning for financial security does not just mean aspiring for peace of mind.  
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It includes allowing your child the freedom to pursue their passions without worrying about the financial burden. Let them focus on their studies, choose their career path, or start their own business with peace of mind, knowing you have created a safety net for them to fall back on. In this journey of securing your child’s future, the rising costs of education and hidden inflation can feel like hurdles. Traditional saving methods struggle to keep pace with inflation, leaving a gap between our dreams and reality. This is where mutual funds emerge as a powerful tool for securing your child’s future. 

Long-Term Growth — Mutual funds pool investments from many investors and build portfolios, thereby providing investors with access to a diversified portfolio along with professional fund management. Given the long-term nature of the goal, investors can consider investing in an equity-oriented fund, if one starts early. This is because the true magic of mutual funds lies in their potential for growth through compounding. Data shows that the average 10-year return of domestic equity funds broadly ranges between 13-21 per cent CAGR while that of a traditional debt instrument ranges between 6-7 per cent. 

This clearly highlights the wealth creation potential of equities as an asset class. Picture this: you are investing a small sum regularly, as for example, ₹5,000 per month. Over time, the returns are reinvested, generating even greater returns. This snowball effect can significantly grow your corpus, outpacing inflation. For example, a SIP of ₹5,000 with a 12 per cent return for 20 years can turn your investment of ₹12 lakhs into ₹50 lakhs! This will surely help you build the right kind of corpus. 

Flexibility for Every Stage
Unlike traditional options, mutual funds offer flexibility as per one’s financial goals and risk tolerance. If the financial goal is short term in nature, then a Debt Fund can be the go-to option. For matters related to funding education and marriage, parents can consider equity-oriented offerings. If the risk profile is conservative in nature, you may consider hybrid offerings. 

Another advantage is the staggered way in which one can build the corpus. A systematic investment plan (SIP) allows you to invest fixed amounts regularly, fostering financial discipline and leveraging rupee-cost averaging. This means one gets to buy more units when the market is low and vice versa, thereby averaging out the cost per unit over time. Flagging off a SIP early, even with a modest amount, can reap significant benefits over decades. 

Getting Started — While mutual funds may seem complex, with research and guidance from a qualified financial advisor, the journey can be smoothened out.
Here are some pointers:
■ Define Goals: Clearly define your financial goals for your child, considering their age, aspirations and future needs.
■ Assess Risk Tolerance: Are you comfortable with volatility, or do you prefer a more stable option? Understanding your risk tolerance helps you choose the right mutual fund category.
■ Seek Professional Help: A financial advisor can guide you through the vast array of options, recommend schemes aligned with your goals, and help set up a customised investment plan for your child. 

While investing directly in a minor’s name has complexities, a separate account in your name with your child as beneficiary offers a simpler solution. Popular online platforms allow this, avoiding branch visits and paperwork. Plus, your child inherits the benefits seamlessly when they reach adulthood. 

Building a Legacy — By investing in mutual funds, a parent is not just securing a child’s financial future but is investing in their dreams and aspirations. With careful planning, discipline and the power of compounding, you can empower your child to pursue their chosen path and navigate life’s challenges with confidence. Take the first step today and unlock the potential of mutual funds to build a sizeable legacy for your child. 

The writer is Managing Director, RP Wealth Private Limited
■ Email : [email protected] ■ Website : www.rpwealth.in 

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