Children Are The Anchors That Hold A Mother To Life: Sophocles

Children are an immense source of inspiration, at times they become the reason for our growth; ensuring a better future for them becomes our primary responsibility, and core of our future planning.

As parents, we have a profound desire to provide the best possible opportunities for our children – be their education, marriage, or future financial well-being. These significant milestones require substantial financial resources, and investing early is crucial to secure a future for the child. One effective way to ensure a solid financial foundation for the child is by investing in mutual funds which offer a range of benefits, including diversification, professional management, and the potential for long-term inflation-beating growth.

Advantages :
One of the key advantages of mutual funds is their potential for long-term post-tax appreciation that can neutralize the damaging impact of inflation on our purchasing power. When investing for the child's future, we have the advantage of time, that allows investments to compound by many-fold.

Professional Management:
Mutual funds are managed by specialized professionals who make investment decisions on behalf of the investors. They have the expertise to analyze trends, select suitable shares, and adjust the portfolios. This professional management is beneficial for parents who may not have the time or adequate expertise to manage their investments. By entrusting our child's future to expert fund managers and experienced advisors we can have confidence in the investment decisions being made on our behalf.

Risk Management through diversification:
Mutual funds offer diversification by investing in a basket of securities, spreading the risk across different companies, sectors, and asset classes. By investing through mutual funds, we can mitigate risk and increase the potential for stable upside growth.

Flexibility, Accessibility, Liquidity :
Mutual funds offer flexibility, ample liquidity, and easy accessibility – making them suitable for parents of varying financial capabilities. It allows us to start with modest amounts for regular contributions over time. This flexibility helps adjust our investment according to our financial situation and realities. The easy accessibility ensures that we have financial resources available when important milestones are reached.

Tax Benefits and efficiency:
Certain mutual fund schemes, such as ELSS, offers tax benefits under the IT Act. Besides, long-term capital gains on equity funds are tax-free up to one lakh rupees. By leveraging these tax benefits, we can optimize the investment returns while minimizing the tax outgo.

Since mutual funds are registered under the Indian Trust Act, they are treated as pass through vehicles by income tax. That exempts it to pay taxes on the gains made by the funds through selling of shares by the fund managers – a significant advantage over PMS and direct stock investments.

Solution oriented funds:
Children’s gift funds are SEBI mandated mutual funds invested till the child attends the age when the returns generated can be used for their future funding requirements.

Few more points to remember before further planning and getting started with the investments.

~ Start Early to Leverage the Power of Compounding

Time is a powerful ally when it comes to investing for long-term goals for the children. The earlier we start investing, the longer our investments, the better is the scope for growth, and more the benefits from the compounding effect.

~ Identify Suitable Funds

It is important l to identify suitable funds that align with our investment objectives and match with our risk profiles.

~ Asset Allocation and Diversification

It is crucial to adopt a balanced approach to investments. Diversifying our investments across different asset classes, such as equities, bonds, real estate, and gold, can help spread the risk and potentially enhance returns. Different asset classes have varying levels of risk and return potential and tend to perform differently in different market cycles.

Debt mutual funds have emerged as potential alternatives to other Debt assets like PPF and Bonds. Equity funds are preferred over less flexible and expensive ULIPs.

~ Regular Investments and Systematic Investment Plans

[I don't look to jump over seven-foot bars; I look around for one-foot bars that I can step over. — Warren Buffett]

Consistency is key when it comes to investing for our child's future. SIPs allow us to invest a fixed amount at regular intervals, provide the advantage of rupee cost averaging, and this strategy helps mitigate the impact of market volatility and can result in better investment experiences.

~ Review and Rebalancing

When we follow an asset allocation model, periodic review, reassessment of the investment strategy, and any necessary course corrections helps optimize the portfolio performance.

Conclusion
Investing in mutual funds for our child's future is a prudent choice for realizing financial aspirations. But it is essential to assess our risk appetite, investment goals, and carefully select funds that align with financial objectives. Consulting a financial advisor helps to achieve the desired goals with better experiences.

About Author:
Hrushikesh Swain, Mutual Fund Distributor