Father’s Day: Build an asset for your child, consider this mutual fund option | Economic news

This Father’s Day, consider starting a mutual fund to build wealth for your child by harnessing the miracle called compounding.

Father’s Day 2024 can be the starting point of your mutual fund investment journey to protect your child’s future. (Photo credit: Unsplash)

New Delhi: It’s Father’s Day, Sunday June 16, 2024. These days, one of the main responsibilities of a father is to build wealth for his child. On the eve of a special day, you could take the following steps to brighten your loved one’s future. Since creating assets for a child’s future is essentially a long-term financial goal, the most effective and practical instrument is investment in mutual funds.

If you can invest even a small amount in a disciplined manner over a long period of time, it creates a neat corpus that can not only help your child pay for higher education but also partially fund a business.

Systematic Investment Plans (SIPs) that allow you to invest in mutual funds of your choice within a predetermined time interval are the optimal mode of asset creation over a long period of time. More importantly, unlike debt instruments with guaranteed returns, mutual funds help beat inflation without taking the risks of direct exposure to stock markets.

The frequency of SIPs for mutual fund investments can be chosen as per your convenience – once a month, once a week or even every day. The money will be debited from your designated bank account and you will not need to do anything other than ensure that the amount that will be invested is present in your account for a smooth investment.

It’s never too early to invest in MFs

When can you start investing for a child? The answer is as soon as you get some basic documents like Aadhaar and PAN. Radhika Gupta, CEO of Edelweiss Asset Management Company, has some specific advice for you. “Do monthly SIPs. 2-3 funds work. You can use a large/mid-sized index fund for broad market exposure, mid-cap and small-cap funds to add risk, and an international fund if you plan to study abroad to manage currencies.

Prasunjit Mukherjee, investment strategist and CEO of Plexus Management Services, says there is no period in the history of the Indian stock market where markets have been down for prolonged periods. “If you invest in select mutual funds and continue to do so for 15 years or more, the markets are unlikely to disappoint you,” says this market veteran.

Gupta also advises choosing a goal such as higher education to set a very tangible goal. “Break it down into the number of years you have to determine the investment amount,” she said.

Documents required to invest in mutual funds

Soon after birth, when you get the birth certificate, you can easily get an Aadhaar card and create a PAN. These documents will allow the father to open a bank account in the minor’s name. These documents are important to start investing in mutual funds for your child.

While one can certainly invest in equity or debt funds depending on your risk appetite, there are also children’s funds in the market to choose from. These funds are designed to address childhood-related goals and conditions, such as addressing the rising costs of higher education.

Child plan funds invest in both equity and debt portfolios. Children’s funds generally have a minimum lock-in period of five years, which prevents an investor from withdrawing their funds before they mature. However, if one chooses funds that do not fall into this category, there is no lock-in period.

Small but disciplined

Investing in mutual funds for 15 years or more, even a small amount can create a nice sum. Consider this, starting this Father’s Day 2024, a monthly investment of Rs 2,500 over 15 years (considering a very average return of 12%) will net you a total amount of Rs 19.13 lakh when your child becomes an adult, provided that you start investing from the very first year.

If you double your monthly SIP amount to Rs 5,000, the amount rises to Rs 38.27 lakh and if you manage to put in Rs 10,000 per month, the amount increases to Rs 76.54 lakh. Gupta advises revisiting the investment every few years, as goals may continue to change as the child grows.

In India, SIP has easily become an investment tool for the common man. In April, mutual fund inflows through the SIP route crossed Rs 20,000 crore for the first time to reach Rs 20,371 crore. In May, SIP mutual fund inflows reached Rs 20,904 crore.

(Disclaimer: This article is intended to provide information only. News9live.com does not recommend buying or selling shares or subscriptions of IPOs and mutual funds.)