Best Investment Plan for Children: Mutual Fund?
To win a race, they say, it's not only important to run fast, but also to start early. As parents, you want the best for your child and to give the best to your child tomorrow, you will have to start today. If you start systematic investing today, by the time your child grows up, you would have a sufficient corpus to care of their higher education or wedding expenses. But with so many instruments available in the market which promise guaranteed returns (or so to say), which one do you chose?
Each instrument in the market fits a particular need and to select the best investment plan for your child, we need to first understand what our goals are.
- You don't have a ready capital to invest directly right-away. The capital needs to be built in terms of savings over the years.
- You have sufficient time – your child is just in pre-school and you have close to 15-18 years to build a good sum of money.
- And since we have time, we could also be a bit aggressive in our portfolio selection and bet a part of the yearly savings in equity instruments. However, a fair share needs to be invested in asset classes too like gold for example.
- We would also need to factor-in the ever increasing cost of education. Each year, the cost of education especially, higher education breaks new limits. With the rising inflation, we need a vehicle which will factor in the inflation and give you returns over and above that.
Child Mutual Fund plans (e.g. ICICI Prudential Child Care Gift Plan, SBI Magnum Children Benefit, HDFC Children's Gift Investment Plan) are exactly built around these needs. Mutual Funds like these offer the following features:
- Diversified Allocation: Your funds are invested across various asset and equity classes providing you the right mix of risk exposure.
- Low Cost: Mutual Funds charge less than 2.25% per annum as expenses which is way better than spending as high as 6% on ULIPs.
- Professional Portfolio Management: With Mutual Funds, you get the assurance that your money is in the hands of professionals. You can get them to take up the cumbersome and tricky task of timing the market and deciding the right mix for investing your money.
- Liquidity: Unlike ULIPs, one is not penalised for exiting a child mutual fund plan prematurely. In case one is in dire need of liquid money, one can always stop and exit which makes Mutual Fund SIPs highly liquid.
The best possible investment plan for your child's bright future is to invest in your child's education and taking all these factors into consideration, Mutual Funds are the best possible way which will help you give him that.