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)

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

Source: MFI Explorer | Data as on 31st August, 2021

Click here to start your investment journey today.

Disclaimer:Mutual fund investments are subject to market risks, read all scheme related documents carefully. 

Latest Comments

Leave a Comment

200 Characters

Related Information


Read Next

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.