Author: SHAILLY SETH of TWELVE MONTHS FINVEST LLP
Raising a child is a very fulfilling job but it also comes with a lot of responsibilities. In an Indian household, parents normally provide for the child’s higher education, marriage and in some cases even a business set-up. Since these goals are considered very important, individuals hesitate to invest in equities and opt for more traditional options like fixed deposits, gold and real estate. However, these options may not necessarily meet the rising costs associated with these goals. To build a corpus, equity exposure is also equally important. Though volatile, equities have been known to deliver better inflation adjusted returns historically. Hence, a combination of all asset classes is essential for achieving long term goals.
This is where mutual funds play an important role. Mutual funds pool money from multiple investors and invest in a diversified portfolio of equities, bond, etc. They are professionally managed and contribute significantly towards wealth creation. Mutual funds offer an edge over other investment avenues due to benefits like –
- Compounding: It is a powerful concept that involves earning returns on both original investment as well as on returns received previously. The sooner you start investing the better as the money grows exponentially through compounding
- Returns: Returns are market linked. However, the potential for inflation beating returns are high
- Accessibility: You can start investing with a small amount and contribute regularly
- Liquidity: As opposed to some traditional options, open-ended mutual funds are highly liquid and can be redeemed whenever needed subject to exit load
With multiple offerings in this space, you have the option to choose products based on your risk profile and investment horizon. A conservative investor can opt for large cap funds or hybrid funds that are less susceptible to volatility and have historically generated better returns than traditional investments.
Investing in mutual funds through Systematic Investment Plan (SIP) route is an investor friendly and easy route. An SIP is an investment option by which investors can contribute a fixed amount regularly thereby inculcating financial discipline and reducing the risk of market volatility through rupee cost averaging. Other benefits of SIP include –
- No need to time the market as fixed amount is invested at regular intervals
- Since the investment amount and tenure are determined at the outset based on set goals, operating an SIP is easy and hassle-free
- With many fund houses offering minimum investment amount as low as Rs. 100, it offers great flexibility
- Since the larger goal is to achieve a strong financial foundation for your child’s future, it helps you to stay invested rather than stopping the SIP during market downturns
Another option offered by mutual funds is the children’s scheme that comes with a lock-in of 5 years or till the child becomes 18 years of age whichever is earlier. This instills the habit of staying invested and allowing the fund managers to take long term high conviction calls. A step-up SIP in such schemes greatly enhances wealth creation journey.
To sum up, a well thought of and disciplined investing in mutual funds today can lay a strong financial foundation and can help you and your child achieve your dreams without having to worry about any constraints. Start early and you can witness the power of eighth wonder i.e. compounding in your portfolio.
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Published on May 13, 2025
