As your child matures, their needs and aspirations evolve, and one of the primary demands is quality education. To ensure this, saving money is essential, but equally crucial is investing it wisely to make your money work for you and provide the best opportunities for your child.
While the cost of fulfilling your child’s dreams may seem substantial now, it will only increase with time. Therefore, it’s crucial to have a financial plan in place that addresses your child’s long-term needs. The key to achieving these goals lies in harnessing the power of equity investments.
For generating inflation-beating returns you can consider investing in equities, including equity mutual funds, as it can play a significant role in building a strong financial foundation for your child’s future. Consider this: if you want to save Rs 50 lakh for your child’s education in 15 years then you need to save Rs 10,500 per month, assuming the return of 12 per cent in equities. If you are late to the party and just 10 years away from your goal, then you need to save around Rs 22,500 every month to accumulate the sum of Rs 50 lakh.
The good news is that starting a mutual fund for your child has become less cumbersome, thanks to a recent circular issued by the Securities Exchange Board of India (SEBI) on May 12. According to this circular, as of June 15, investments can be made from the bank account of the parent or legal guardian of the minor, or a joint account held by the minor with a parent or legal guardian. This eliminates the need to open a separate bank account in the child's name to initiate the mutual fund investment.
By opening a mutual fund in your child’s name you remain committed to the goal, without getting swayed by the temptation to liquidate funds for other purposes. However, there is an important caveat to keep in mind. Although the investment can be made from the parent’s or guardian’s bank account, the redemption proceeds will be exclusively credited to the minor’s bank account when funds are withdrawn. Therefore, while you may not need a bank account in the child’s name to start the mutual fund, it will be necessary at the time of withdrawing the funds.
A good education is a significant expense that is sure to increase over time due to inflation. Equities offer excellent potential for returns that can help fund such future expenses. Historical data shows that equities have outperformed other asset classes in terms of returns, making them a preferred choice for long-term financial planning.
While stock markets may experience short-term volatility due to news and sentiments, over longer periods, equities tend to smoothen out and provide growth potential. Equities historically have beaten inflation, making them a reliable choice to combat rising costs in the future. Their ability to diversify risk across multiple stocks and sectors further strengthens their position in a well-structured investment portfolio.
Including equity mutual funds in your financial planning is relatively simple and cost-effective. Unlike direct stock trading, equity mutual funds don't require a deep understanding of the market or significant time investment. These funds pool money from multiple investors and invest it in a diversified portfolio of stocks, making them accessible to everyone. Moreover, you can invest in the name of your child without the need for a demat account.
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