7 rules to keep in mind while investing for your children

15 JULY, 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	269,126	28.0%	89,126	512,040	21.5%	212,040	1,508,692	17.6%	908,692
Kotak Flexicap Fund	259,396	25.2%	79,396	465,805	17.6%	165,805	1,493,198	17.4%	893,198
Mirae Asset Large Cap Fund	265,310	26.9%	85,310	483,613	19.2%	183,613	1,553,540	18.1%	953,540
Multi Cap Funds
Kotak Equity Opportunities Fund	275,301	29.6%	95,301	491,588	19.9%	191,588	1,506,059	17.5%	906,059
Invesco India Growth Opportunities Fund	259,726	25.3%	79,726	471,936	18.2%	171,936	1,425,688	16.5%	825,688
UTI Flexi Cap Fund	301,316	36.5%	121,316	556,699	25.0%	256,699	1,637,524	19.1%	1,037,524
Multi Cap Funds with Large Cap Bias
Axis Focused 25 Fund	278,619	30.5%	98,619	516,803	21.9%	216,803	-	-	-
SBI Flexicap Fund	269,187	28.0%	89,187	477,364	18.6%	177,364	1,516,384	17.6%	916,384
Mid Cap Funds
Kotak Emerging Equity Fund	303,741	37.1%	123,741	532,085	23.1%	232,085	1,888,385	21.7%	1,288,385
DSP Midcap Fund	278,584	30.5%	98,584	491,105	19.8%	191,105	1,691,253	19.7%	1,091,253
Small Cap Funds
Kotak Small Cap Fund	358,058	50.2%	178,058	613,608	29.1%	313,608	2,014,950	22.9%	1,414,950
International Funds
Franklin India Feeder - Franklin U.S. Opportunities Fund	288,648	33.2%	108,648	593,503	27.7%	293,503	-	-	-
Kotak Global Innovation Fund of Fund	-	-	-	-	-	-	-	-	-
Indices
Nifty 50 TRI	267,833	27.6%	87,833	491,790	19.9%	191,790	1,363,360	15.7%	763,360
Nifty Midcap 100 TRI	292,955	34.3%	112,955	493,210	20.0%	193,210	1,508,022	17.5%	908,022
S&P BSE 200 TRI	273,086	29.0%	93,086	495,009	20.1%	195,009	1,421,268	16.4%	821,268