These funds have a lock-in period to discourage early withdrawals and help you stay committed to the goal
By DP Singh
As parents, one thing that you would want for your child is to get the best of everything in his or her life. Given the kind of exposure that children get today, they are likely to explore unconventional career paths and aspire to become a coder, a gamer, an artist, an entrepreneur at a young age or make a career in sports. All these unconventional career paths do not yield immediate and regular income and thus need better financial planning at parents’ end.
Like for every other goal in your life, preparing an investment plan to meet the financial needs that may arise at different stages of your child’s growth, can help avoid stress in future. For this it is essential that you start early and invest in appropriate investment avenues that have the potential for long-term wealth creation.
You may have planned for these expenses through traditional investment avenues but at the same time investments in market linked instruments such as mutual funds are also needed. That’s not it, you should invest in your child’s name so that you don’t end up disturbing these savings in times of need and the money is only utilised for the intended purpose. Premature withdrawals from the fund allocated for your child can disturb the target corpus that you plan to achieve.
Children’s funds offered by mutual funds are one avenue which can be looked at for long term wealth creation. These funds also have a lock-in period, say of five years, to discourage early withdrawals and to help you stay committed to the goal. You should start investing at the earliest and in a systematic manner as it can help you build the required corpus by investing a smaller amount on a regular basis. This is because the longer you stay invested, higher is the compound effect, eventually helping you build a higher corpus.
Children’s funds offer different plans which cater to different investor risk profiles. The decision to choose from either an equity-oriented fund or debt-oriented fund should be based on your risk profile, investment horizon and the corpus you intend to build. You can invest in these funds until the child turns 18. So, if you are starting early and have a longer investment horizon it is advisable to invest in a fund that has higher allocation to equities.
The writer is chief business officer, SBI Mutual Fund