It is good to start investing early to achieve a financial goal, more so for your child’s education or wedding. Start saving enough to achieve adequate corpus in the first 7-10 years so that you can rest assured for their big investments later on. Since most of our financial decisions are interconnected, it is advisable to save and keep this corpus aside from the regular or other monetary transactions, after all, taking education loans later on may increase your liability.
The key take is to “Start saving early and reach your goals faster by picking a right instrument.”
Picking the right investment plan is a crucial point, having said that, do not buy an insurance plan or any child plan to accomplish the goal.
Investing in Mutual Funds
Even though the term ‘SIP’ is buzzing equally around financial and non-financial platforms, it is an easy and best way to save monthly for your kids. In order to get a thorough knowledge on mutual funds, we need to understand different investment options such as:
A kind of mutual fund where the shareholder’s cash is invested to buy ownership of business or stocks. This is a bit of risky compared to debt funds. Return on these investments depends on how good the company is performing.
The Diversified Equity Funds diversifies investments across the stock market in a bid to maximise gains for investors. They are offered by unit-linked insurance plans / ULIPs, mutual funds and other investment firms.
Equity-oriented balanced fund offer stable returns over long run overcoming the interim volatility. This fund aims to capture the best of both worlds-the return potential of equities and safety of debt.
- You can pick in between low risk, moderately risk and high risk investment plans based on your aggressiveness.
- Chance to diversify between various equity plans at a time.
A kind of mutual fund that invest in fixed income securities like bonds. This is a best option if you do not want to invest highly volatile equity funds and provides steady but low income relative to equity funds.
- You can pick between short term and long term investment plans.
Systematic Investment Plans (SIP)
SIP is an investment strategy to invest a fixed amount of cash in a particular mutual fund for a stipulated period.
Through SIPs, you can buy less or more number of units or stocks depending on the price fluctuation. That is, you can buy more units when the price is low and fewer units when the price is high for the same amount of investment.
- You can invest in both debt funds and equity funds through SIPs
- If you are confused between the types of equity or debt funds you can also invest through an agent.
- It is always good to study the market or take advice from an expert to decide on the investment plan which will work for you.
- You can also find the best performing funds once you decide on your aggressiveness (that is low risk, moderate risk and high risk) of the investment.
- A good rule of thumb is to invest in longer durations, at least 7 years or more to avoid the losses incurred. It is found from a survey that losses can be converted to profits over a period of 7 years, so stick to the investment.
Investment Plan Based On Child’s Age
When it comes to investing there is no hard and fast rule to pick in between any one of the mutual fund, though, it is good to diversify in between equity and debt funds. People often get confused to how much they need to assign to debt and equity funds, here we propose approximate % of funds you can invest in each type. You also need to select the appropriate equity plans to invest as it is always good to invest in separate equity plans.
Depending on the age of your child, here is a best plans to invest and reach your goals.
- For a 1-7 years old kid, there is scope to invest for 11-17 years and so try to invest about 85-90% in diversified equity and 10-15% in debt funds.
- For a 8-12 years old kid, invest for 6-10 years term in 50% each in diversified equity and debt funds.
- For 13-17 years old kid, invest term is 1-5 years with 10-15% in Equity and 85-90% in Debt funds.