30 October 2024
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In India, traditionally it is a common practice to plan for a child’s future needs like education and wedding from an early age. Given that the cost of education, healthcare, etc. is on a steady rise, planning and investing wisely for a child’s future has become even more important now. This not only helps ensure they get a good education but also lets them pursue their dreams without worrying too much about money.
In the past, parents preferred government schools, then public schools gained popularity and eventually, the cost of education skyrocketed. For higher education, many parents today aspire to send their children overseas. Just saving money for these needs isn’t enough because inflation makes money lose its value over time. So, investing is important to keep up with the rising costs and being future ready. A great way to begin investing is by using mutual funds. This financial instrument can make a big difference in securing your child’s financial future given the flexibility it offers in terms of the investment amount and its ability to take advantage of compounding.
A child’s life journey involves different phases; each comes with its own financial needs. From school fees to college, higher studies, and eventually marriage, every stage requires a customized financial strategy. Parents can set up systematic investment plans (SIPs) tailored to each of these specific goals.
Mutual Funds offer a diverse range of schemes each tailored to different time horizons of investment. This flexibility allows parents to allocate their investments strategically based on the specific needs of their child at different stages of life. For short-term financial goals, such as funding a child’s immediate educational expenses or extracurricular activities, debt funds can be a suitable option.
On the other hand, for long-term goals like higher education abroad or marriage expenses, equity funds present an attractive opportunity. Moreover, through mutual funds, individuals can access international funds, offering significant advantages to parents considering sending their children overseas for higher education or other endeavours. The depreciation of the Indian Rupee against major currencies like the US Dollar over the long term is a well-known phenomenon. By investing in international funds, parents can mitigate the risk of rupee depreciation and potentially benefit from currency appreciation, thus safeguarding the value of their investments.
To make the most of mutual funds, it’s important to plan and be disciplined. The first and most crucial step is to start early. With this, you give your investments more time to grow and compound, resulting in a larger corpus by investing smaller amounts for a longer period. Further, when calculating future expenses for your child, it is essential to consider not just price inflation but also lifestyle inflation. Price inflation refers to the general increase in the cost of goods and services over time, while lifestyle inflation considers the rise in expenses associated with an improved standard of living. For instance, education costs may not only increase due to price inflation but also because of advancements in educational technology, curriculum enhancements, and extracurricular activities. Similarly, lifestyle choices such as pursuing higher education abroad or opting for specialized courses can significantly impact future expenses. By factoring in lifestyle inflation, you can make more accurate projections and ensure that your investment plans are aligned with realistic financial goals.
By factoring in these key principles into your investment strategy, you can navigate the complexities of financial planning with confidence and ensure that your child’s future aspirations are supported with sound financial decisions.
Suresh Kumar Kakani, Director, Fortune Finsec Pvt LTD
Disclaimer
The views are personal and are not part of the Outlook Money editorial Feature.
