7 rules to keep in mind while investing for your children

31 MARCH, 2022

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	236,137	18.5%	56,137	450,435	16.3%	150,435	1,335,698	15.3%	735,698
HDFC Flexi Cap Fund	262,148	26.1%	82,148	460,947	17.2%	160,947	1,311,613	15.0%	711,613
Kotak Flexicap Fund	239,133	19.4%	59,133	431,578	14.5%	131,578	1,355,870	15.6%	755,870
Mirae Asset Large Cap Fund	244,381	20.9%	64,381	445,896	15.9%	145,896	1,413,637	16.4%	813,637
Multi Cap Funds
Invesco India Growth Opportunities Fund	239,214	19.4%	59,214	433,857	14.8%	133,857	1,306,260	14.9%	706,260
Kotak Equity Opportunities Fund	255,863	24.3%	75,863	465,057	17.6%	165,057	1,410,161	16.3%	810,161
UTI Flexi Cap Fund	257,189	24.7%	77,189	483,838	19.2%	183,838	1,425,324	16.5%	825,324
Multi Cap Funds with Large Cap Bias
Axis Focused 25 Fund	236,760	18.7%	56,760	439,763	15.3%	139,763	-	-	-
Mid Cap Funds
DSP Midcap Fund	241,322	20.0%	61,322	435,018	14.9%	135,018	1,461,129	17.0%	861,129
Kotak Emerging Equity Fund	282,001	31.5%	102,001	508,075	21.2%	208,075	1,752,275	20.3%	1,152,275
Small Cap Funds
Kotak Small Cap Fund	335,494	45.0%	155,494	600,978	28.2%	300,978	1,939,860	22.2%	1,339,860
International Funds
Franklin India Feeder - Franklin U.S. Opportunities Fund	223,382	14.6%	43,382	464,244	17.5%	164,244	-	-	-
Kotak Global Innovation Fund of Fund	-	-	-	-	-	-	-	-	-
Indices
Nifty 50	246,971	21.7%	66,971	448,563	16.1%	148,563	1,204,167	13.4%	604,167
Nifty Midcap 150 TRI	282,865	31.7%	102,865	499,055	20.5%	199,055	1,630,052	19.0%	1,030,052
S&P BSE 500 TRI	259,562	25.3%	79,562	468,942	17.9%	168,942	1,352,265	15.5%	752,265

Source: MFI Explorer | Data as on 31^st March, 2022

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

7 rules to keep in mind while investing for your children

31 MARCH, 2022

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