Children’s Day is just around the corner and it is an important day to remind us of our kid’s future. While it is a time for joy, laughter, and celebrating the innocence of childhood. But it is also a perfect opportunity to reflect on the future you envision for your child. As parents, we all want the best for our children, and securing their financial future is a crucial part of that dream. So, this Children’s Day, consider giving your child the gift of a secure tomorrow by starting a Systematic Investment Plan (SIP) in mutual funds.
Let us learn about our child’s goals, and how mutual funds can help us systematically reach them.
Need For Planning Your Child’s Future
The world is changing rapidly, and the cost of education, healthcare, and other essential needs is constantly on the rise. Planning for your child’s future has never been more critical. Whether it is funding their higher education, supporting their dream wedding, or helping them with their first home, a well-planned financial strategy can empower your child to achieve their aspirations without facing undue financial burden.
Here is a hypothetical example to understand the real cost of child goals.
Imagine a child, Arjun, born in 2024, and let us map out her potential education expenses in India:
Preschool (2028-2030)
Arjun’s parents want him to have a strong foundation, so they enrol him in a well-regarded preschool in Bangalore. The annual fee in 2028 is ₹1,20,000, including tuition, books, and extracurricular activities. However, by 2029, the fee increases to ₹1,35,000 due to inflation and rising operational costs. For 2030, it jumps again to ₹1,50,000. That is a whopping total of ₹4,05,000 for three years of preschool!
Primary School (2030-2035)
Arjun’s parents choose a reputable private school with a focus on holistic development. In 2030, the annual fee for Grade 1 is ₹2,50,000. This includes tuition, books, uniforms, transportation, and extracurricular activities like swimming and music lessons. However, the school has a policy of increasing fees by 8% every year. So, by the time Arjun reaches Grade 5 in 2035, the annual fee has climbed to ₹3,67,332. Over five years, the total cost of primary school comes to a whopping ₹16,58,660!
Secondary School (2035-2037)
Arjun continues his education at the same school, but the fees increase further. In 2035, Grade 6 costs ₹4,50,000 per year, including new expenses like lab fees and technology charges. With an annual increase of 10% to account for advanced coursework and specialised teachers, the fee for Grade 7 in 2037 becomes ₹5,44,500. The total cost for these two years of secondary school reaches ₹9,94,500.
Higher Education (2037-2041)
Say, Arjun aspires to be a doctor. In 2037, the annual fee for a private medical college in India is a staggering ₹15,00,000. This includes tuition, lab fees, hostel charges, and other expenses. With an estimated annual increase of 7% to cover advancements in medical technology and research, the fee for his final year in 2041 reaches ₹19,83,567. The total cost for his four-year MBBS degree amounts to a significant ₹71,34,268!
With this example, you can realise what it means to give your child a quality life. So, think of it as building a strong foundation for their dreams. By starting investments early, you can leverage the power of compounding and create a substantial corpus over time, ensuring your child has the resources they need to thrive.
How Mutual Funds Can Help
Mutual funds are a smart and efficient investment vehicle to achieve your long-term financial goals. They pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets, managed by professional fund managers.
Mutual funds investing offers several advantages like these:
1. Diversification: Mutual fund investments reduce risk by spreading investments across different assets.
2. Professional Management: Experienced fund managers manage the mutual funds portfolio. Therefore, you can stay at ease with your investments and avoid regular market tracking.
3. Affordability: You can start investing in small amounts regularly. These amounts can be as little as ₹500/month.
4. Liquidity: Easy to redeem your investments when needed in open-ended mutual funds.
For a child’s future, equity mutual funds, which primarily invest in stocks, can be a better option, considering a longer investment tenure. Over the long term, equities have the potential to deliver higher returns, helping you build a significant corpus for your child’s future needs.
Benefits of SIP with Mutual Funds
SIP investing in mutual funds allows you to invest a fixed amount in a mutual fund at regular intervals, such as monthly or quarterly.
This disciplined approach offers numerous benefits such as:
1. Rupee Cost Averaging
Imagine buying chocolates. When they are cheap, you can buy more with your pocket money, and when they are expensive, you buy fewer. Rupee cost averaging works similarly. By investing regularly in a mutual fund, you buy more units when the market is down and prices are low, and fewer units when the market is up and prices are high. This strategy averages out your investment cost over time, reducing the risk of buying high and selling low.
2. Power of Compounding
Albert Einstein famously called compounding the “eighth wonder of the world.” Think of it like a snowball rolling down a hill, gathering more snow and getting bigger as it goes. With compounding, your investments earn returns, and those returns are reinvested, generating further returns. Over time, this snowball effect can significantly amplify your wealth. The earlier you start, the more time your money has to compound and grow.
3. Convenience and Discipline
SIPs automate your investments, making it effortless to save consistently. You don’t have to worry about timing the market or making lump-sum investments. This automated approach instils financial discipline, ensuring you stay invested and on track to reach your goals.
The Early Starting Advantage
Starting early is the key to maximising the benefits of investing, especially when it comes to harnessing the power of compounding. The longer your investment horizon, the more time your money has to grow. Even small amounts invested regularly can accumulate into a substantial sum over time.
For example, if you start a monthly SIP of ₹5,000 for your child at an assumed annual return of 12%, you could accumulate over ₹1 crore in 20 years. Sounds great, isn’t it!
Starting early also instils financial discipline and allows you to ride out market volatility, ensuring that short-term fluctuations do not derail your long-term goals.
Wrapping Up
Starting early for your child’s goals can help you effectively beat inflation and strive towards quality life for your children. This Children’s Day, let us take a proactive step towards securing your child’s future. Start a SIP in a well-chosen mutual fund and watch your investment grow over time. Remember, the best gift you can give your child is the foundation for a bright and financially secure future.
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