However, today’s parents are increasingly prioritizing intermediate goals—such as higher education, whether it be in engineering, medicine, MBA or international studies—that have become as costly if not more than the cost of wedding. Now more than ever, parents need to invest wisely in plans that helps their money grow with their child’s ambitions, ensuring their investment keeps pace with inflation and helps their children soar.
The Rising Cost of Education: A Serious Reality Check
Education, unlike most expenses, is non-discretionary—parents are loathe to compromise on quality when it comes to their child’s dreams. And yet, the cost of education is skyrocketing.
Inflation in education services has been running ahead at almost double that of the reported consumer price index numbers put out by the Government. With around 11% p.a. inflation in college fees, the costs of good MBA programs have surged 8 times in the last 20 years.
This rapid increase means that for many families, funding their child’s education has become a financial burden, which if not well planned for, can result in sleepless nights and risk of missed opportunities.
Why Equities Are Key to Long-Term Wealth Creation?
Parents saving for their children’s futures need investment options that can seek to outpace inflation, and historically, equities have proven to be the asset class with the highest real returns over periods of a decade or more. Research shows that long-term investments in equities can yield returns that no other asset class offers*, potentially turning even modest monthly investments into substantial wealth over time due to the power of compounding. For example, an investment of just Rs 9,000 per month over 20 years can potentially grow to a corpus of over Rs 1 crore in a well-performing equity fund*. (Source: Baroda BNP Paribas AMC Internal Research)
The Benefits of Children’s Plan in Mutual Funds
One effective tool in this journey could be a Children’s Scheme offered by mutual funds. These funds provide an ideal blend of disciplined investing and long-term growth. Children’s Plans come with a lock-in period of 5years or when the child becomes a legal adult whichever is earlier, instilling a habit of staying invested for the long term. This feature allows fund managers to make high-conviction, long-term investments. Over a long period invested capital grows manifold given the power of compounding.
The inbuilt discipline of Children’s plan of mutual funds due to their lock-in period combined with the stock-picking ability of professional fund managers can help add to the compounding wealth that the equity market offers. When combined with a step-up SIP, such plans can significantly enhance invested capital and help support your child’s growing aspirations.
How to Start: SIPs and Step-Up Options
Starting early and investing regularly can be the winning combination for parents looking to create substantial savings for their child’s future. A Systematic Investment Plan (SIP), where you invest a fixed amount monthly, is one of a great way to invest into Children’s Funds offered by Mutual Funds. With a step-up SIP, you can gradually increase your monthly contribution, aligning your investment growth with rising incomes and aspirations. This helps modest initial investments to grow into a sizable amount by the time your child needs it.
The Flexibility to Invest Additional Funds
Children’s Plans also allow flexibility to add lump sum investments. Whether it’s an Annual bonus or a birthday gift received from family, these contributions can go directly toward building a robust fund for your child’s future. Such flexibility seeks ensures that any additional inflows can be used effectively to boost your child’s financial corpus, providing peace of mind as they reach for their dreams.
A Final Thought for This Children’s Day
This Children’s Day, consider how Children’s Plan of mutual funds could play a critical role in securing your child’s future. By harnessing the power of long-term equity investments, parents can create an investment that grows alongside their love for their children. Thoughtful and disciplined financial planning today can make all the difference tomorrow, helping children achieve their dreams without financial constraints.
Investing in children plans of mutual funds isn’t just about money; it’s a testament to the hope, love, and support that parents have for their child future. So, as you celebrate Children’s Day, take a step toward fulfilling those dreams—start investing wisely for a future as bright as your child’s potential.
*Source: Bankbazaar Survey. Data as of July 2023 (Latest Available Data), Bloomberg
(The author Suresh Soni is CEO, Baroda BNP Paribas Asset Management India. Views are own)
