In India, every new generation has been in a better position financially than the one before, thanks to parents’ focus on saving for their children’s future.
Parents often consider savings for their children’s needs as a key reason to invest. With rising expectations and costs, it becomes more important to plan ahead.
Mutual fund child plans can be a good investment option to help secure a child’s future, as shared by Suresh Soni, CEO of Baroda BNP Paribas Asset Management India.
Rising Expenses on Education
In the past, parents mainly saved for traditional goals like their children’s marriage, often choosing investments like National Savings Certificates or long-term fixed deposits.
Today, however, many parents are focusing on goals like higher education—engineering, medical studies, or even international studies—before thinking about marriage.
The costs of these educational goals have skyrocketed, becoming just as expensive as wedding expenses.
Therefore, parents must choose investment options that will help grow their wealth and create a strong financial base for their children’s needs.
The Rising Cost of Education: A Sobering Reality Check
Suresh Soni points out that while parents want the best for their children, they also face the challenge of increasing education costs.
The inflation rate in education services is nearly double that of the Consumer Price Index (CPI).
For instance, the cost of an MBA program has increased eightfold over the past 20 years.
This steep rise in costs means that for many families, saving for education is becoming a heavy financial burden. Proper planning is essential to avoid financial strain in the future.
Equity: A Better Investment Option for Long-Term Wealth Creation
Parents saving for their children’s future need investment options that can outpace inflation.
Historically, equity has been the asset class offering the highest returns over long periods—decades, in fact.
Research shows that equity investments can provide returns that no other asset class can match.
By starting with small, monthly contributions, parents can build a significant corpus over time.
For example, investing just Rs 9,000 monthly in a strong equity fund could result in a corpus of over Rs 1 crore in 20 years.
Benefits of Child Plans in Mutual Funds
Child plans in mutual funds offer a disciplined approach to investing with long-term growth.
These plans often come with a lock-in period of 5 years or until the child turns legal adult, whichever comes first.
This lock-in period encourages long-term investments and allows fund managers to invest with a clear strategy.
With long-term investments, the power of compounding can significantly increase the value of the investment over time.
Suresh Soni explains that the lock-in feature encourages disciplined investing, while fund managers select strong stocks based on research.
This strategy can rapidly grow an investor’s capital, especially with the power of compounding in the equity market.
Parents who opt for a step-up SIP can further increase their investments over time, ensuring they meet all their children’s future needs.
How to Start: SIP and Step-Up SIP
The best way to start investing for a child’s future is early and regularly. A Systematic Investment Plan (SIP) allows parents to invest a fixed amount every month in child-focused mutual funds.
A Step-Up SIP lets you gradually increase the monthly contribution as your income rises. This strategy can help parents build a larger fund over time.
Flexibility to Invest Additional Funds
Child plans also allow for additional lump sum investments, such as annual bonuses or birthday gifts.
These contributions can be used to further grow the financial corpus for your child’s future.
This flexibility ensures that any extra funds can directly contribute to meeting your child’s dreams and goals.
