7 rules to keep in mind while investing for your children

30 NOVEMBER, 2021

Planning for your child’s financial future is not complicated if you follow these rules

Every parent wants to build a secure future for their child. With the help of a good finance professional and strong financial discipline, it is easy to do so. If you are confused as a parent on how to build a corpus, it would help to go down the SIP (Systematic Investment Plan) route via mutual funds.

Planning for your child’s financial future is not complicated if you follow these 7 rules:

Start Early: This cannot be emphasized enough. The earlier you plan for your child’s future the better. A SIP of Rs. 6,000 per month for 21 years at a 10% return will give your child a corpus of Rs. 48.16 lakh in 21 years. That’s a solid foundation for your child’s future education. However, if you delay your SIP by just 5 years, you will have to invest ~Rs. 10,700 every month to hit the same target. If you delay it by 10 years, the amount goes up to ~Rs. 21,000.
Account for inflation while planning: An education that costs Rs. 20 lakh today will probably cost Rs. 30 lakh in 20 years. A house that costs Rs. 1 crore today will probably cost Rs. 2-3 crore in 20 years. So you should not be planning for your children’s future with today’s prices in mind.
Build a portfolio according to your risk profile: Some investors are very conservative while others are aggressive. Make sure that you explain to your finance professional very clearly the kind of volatility you are willing to accept in your investments. Plan your portfolio accordingly.
Increase SIP amounts when possible: If you get a bonus or a more-than-expected increment, use that to boost your children’s SIP. That will ensure that the education loan amount for your child will be less. Or it will result in a higher corpus for your child.
Track funds periodically: You have a time period of 15-20 years to build a corpus for your child. Ensure that you are tracking your funds and talk to your finance professional once every year regarding the same. You should know the health status of your investments once a year at least.
Take risks early on, switch to less volatile funds later: If you have 20 years to build a corpus for your child, you can consider investing in funds which are high risk-high return, however as you get closer to the goal, you should migrate to a slightly less risks fund. This is needed as investment horizon shrinks and risk appetite reduces.
Funds Should Be Withdrawn in the Last 2-3 years: One should withdraw funds from equity investments and park them in fixed-tenured instruments for the last 2-3 years of the investment horizon. This will ensure that your corpus won’t get affected by a sudden change in the market.

Category / Scheme Name	3 years (INR 1,80,000)			5 years (INR 3,00,000)			10 years (INR 3,60,000)
Category / Scheme Name	Value (INR)	CAGR	Profit (INR)	Value (INR)	CAGR	Profit (INR)	Value (INR)	CAGR	Profit (INR)
Large Cap Funds
Axis Bluechip Fund	2,54,484	23.9%	74,484	4,86,560	19.4%	1,86,560	14,34,471	16.6%	8,34,471
Kotak Flexicap Fund	2,45,002	21.1%	65,002	4,41,154	15.4%	1,41,154	14,02,610	16.2%	8,02,610
Mirae Asset Large Cap Fund	2,54,579	23.9%	74,579	4,64,584	17.5%	1,64,584	14,84,166	17.3%	8,84,166
Multi Cap Funds
Invesco India Growth Opportunities Fund	2,52,187	23.2%	72,187	4,58,137	17.0%	1,58,137	13,81,661	15.9%	7,81,661
Kotak Equity Opportunities Fund	2,60,608	25.6%	80,608	4,69,086	17.9%	1,69,086	14,30,703	16.6%	8,30,703
UTI Flexi Cap Fund	2,95,091	34.9%	1,15,091	5,49,934	24.5%	2,49,934	16,15,944	18.8%	10,15,944
Multi Cap Funds with Large Cap Bias
Axis Focused 25 Fund	2,67,135	27.4%	87,135	4,96,197	20.2%	1,96,197	-	-	-
SBI Flexicap Fund	2,59,599	25.3%	79,599	4,62,904	17.4%	1,62,904	14,58,074	16.9%	8,58,074
Mid Cap Funds
DSP Midcap Fund	2,64,931	26.8%	84,931	4,71,656	18.2%	1,71,656	16,10,797	18.8%	10,10,797
Kotak Emerging Equity Fund	2,99,592	36.1%	1,19,592	5,30,884	23.0%	2,30,884	18,62,469	21.5%	12,62,469
Small Cap Funds
Kotak Small Cap Fund	3,66,842	52.2%	1,86,842	6,39,278	30.8%	3,39,278	20,85,204	23.5%	14,85,204
International Funds
Franklin India Feeder - Franklin U.S. Opportunities Fund	2,81,520	31.3%	1,01,520	5,77,710	26.6%	2,77,710	-	-	-
Kotak Global Innovation Fund of Fund	-	-	-	-	-	-	-	-	-
Indices
Nifty 50 TRI	2,56,598	24.5%	76,598	4,72,070	18.2%	1,72,070	13,12,016	15.0%	7,12,016
Nifty Midcap 150 TRI	3,01,841	36.7%	1,21,841	5,28,432	22.8%	2,28,432	17,40,589	20.2%	11,40,589
S&P BSE 500 TRI	2,76,966	29.6%	96,966	4,98,671	20.2%	1,98,671	14,35,755	16.6%	8,35,755