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ULIP INSURANCE

Can Mutual Funds Investment help me to create a corpus for my Child?

Janhavi Shinde Janhavi Shinde 06 June 2019

Mutual fund investment offers good returns to fulfil your child’s higher education or other milestones in life. Let’s see how such investments help in successful wealth creation for your child’s future.

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There is a plethora of investment options available today if you wish to plan for your child’s future that includes various milestones such as education, starting a business, marriage etc. After all, we know that planning and investing systematically is no child’s play. Planning for your child’s future doesn’t simply mean saving and investing in a random manner. It is important that you carry out a detailed research to identify the right investment avenues at the right time in order to meet your financial goals. Simply put, striking a right asset allocation balance is essential as you work towards achieving each financial goal planned for your children’s better future. Children’s education has today become a costly affair. To add to it, inflation has made many parents shun their luxuries to fulfil their child’s future.

Mutual funds are one such investment avenue that would help you create a corpus for your child’s future. This article will explain how mutual funds do a fantastic job to wisely plan for your child’s future: Let’s get started…

How to invest in Mutual Fund for minors

If you wish to invest in mutual fund schemes in the name of your minor child, you can certainly do so. There is no age limit or constraint on the investment amount.

Investing in mutual fund schemes can be done by parents or a legal guardian on behalf of a minor child. All that you need to process the request would be a valid document as a proof of your child's age as well as your relationship with the child. However, it is essential that the guardian should be KYC compliant. You would also be required to provide your bank account details. Because, as you are a guardian or a parent of your child, the investment will be routed through your account. Therefore, it is essential for you to submit the Third-Party Declaration Form besides your bank's acknowledgement letter.

There is one more option to carry out the transaction. You can route the transactions directly through your kid’s bank account, yet it is important that the bank provides an acknowledgment letter.

What happens once your child becomes a major?

Since these funds are in your child's name, this investment cannot be redeemed by you once your child turns 18 years old. Therefore, it makes sense to immediately update the KYC details of your child once he becomes a major. Updating his/her details in the bank account with the status of a major is also important.

But is Mutual Funds a wise choice to invest for your child's future?

Yes, why not! Shorter the term, higher would be the risk element associated with mutual funds. When you invest in mutual funds, you would be exposed to two choices – 1.) Investing in specialized children’s education funds and 2.) Building a kind of investment portfolio as per your child’s requirement.

Therefore, keep the below tips in mind before you wish to create a portfolio that would target at meeting your child’s education expenses -

Open a minor account for your child

Invest in Systematic Investment Plans (SIP)

In case your child is eligible for college enrolment within the next 5 years, you should ideally opt for debt and balanced funds. That would definitely be a good decision.

But, if your child is still too young and has more than five years for college enrolment, you can focus on creating an aggressive portfolio. This portfolio should ideally consist of a major chunk of equities and one debt fund.

Expert’s advice to review the portfolio on an annual basis. However, it would make sense to terminate the SIP you have invested in, in case a fund under performs for 3 consecutive years.

The next step would be transferring the profits generated in your equity. The profits should be moved to debt funds, ideally two years before commencement of your child’s college education.

Last but not the least, keep increasing the amount that you have invested in SIP annually. You can then think of further distributing this among all the good funds that you may have in your portfolio.

Alternatively, you can also opt to invest in the ready-made children’s plans available in the Indian market. Such plans are tailor-made to enable the parents to choose different options basis their investment capacity as well as convenience.

Conclusion

Mutual funds are one of the best ways to invest small amounts. Also, Mutual funds give you the liberty to invest regularly in equity assets that are needed for getting real, inflation-adjusted returns. Planning your child’s future is certainly not as easy as it might appear. It is definitely more than just keeping aside funds for his/her future.

But the fact is that it begins from inculcating the habit of saving in your children.

Simply put, kids are smart enough to spend and save wisely by understanding the worth of money. The best part is, this will make them less demanding and help them understand the value of hard earned money.

Recommended Read: How Side Pocketing Affects Mutual Fund Houses and Investors

Janhavi Shinde
Written by Janhavi Shinde
Right from being a Flight Attendant to a Banker and now to a Content Writer, she has tasted success in all the fields. The kinda girl who loves pets and knows how to manage difficult people and events.