Importance of Investing in Children’s Mutual Funds for Education

Published On: 13-Oct-2020

Planning for the child’s career is often one of the significant financial goals for parents. It is generally conceived that one should start planning for their child’s education at an early stage. A prudent planning and investment strategy from an early stage often helps the parents to provide a broader range of education options. 

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One should help their children choose the right career after considering their interests, potential, and dreams. Parents should also encourage their children to pursue what they enjoy doing and what they may achieve, given their potential. They should also encourage them to acquire fundamental life and work skills to make them independent. 

When it comes to planning education goals, it may generally be considered a long-term financial goal. This is because the planning for such a goal should start from an early age of the child. Here is how one should adopt a systematic approach towards child’s career planning:

Quantifying the Goal 

It is said, ‘if one does not know the destination, any road will take you there.’ As such, the parents must quantify the goal and set the destination for their investment journey. While quantifying the required corpus amount, one should analyse their child’s interests and preferences and consider different career options for them to choose. Further, one must consider a reasonable sum towards education planning if such a goal is being conceived during the early years of the child’s life. 

Choosing the right mutual fund scheme 

Once the goal has been quantified, one should prepare a roadmap towards achieving such a goal. One may consider investing in Children’s Funds, which are specially designed towards planning for child goals. 

These are specific solution-oriented mutual fund schemes carry a lock-in period until the child attains majority, subject to a maximum lock-in period of 5 years. Such a lock-in period allows the parents to resist the temptation to redeem the investments at an early stage. 

Regular Investing through SIP 

One should register a SIP (Systematic Investment Plan) for steady and consistent investment towards accomplishing their goals. When the investors make goal-oriented investments, such goals work as an intrinsic motivation for them to continue their investment journey towards the desired destination. 

SIP also allows the investors to continue investing irrespective of whether the markets are moving higher or lower. Once a SIP has been registered, the investment amount is deducted automatically from the bank account periodically and invested in the specified mutual fund scheme. 

Reviewing the goal and investment performance periodically 

One must regularly review the financial goal, as the assumptions taken at the time of formulating the financial plan may have changed over the period. Such changes may happen in the education costs, prevailing inflation, changes in the child’s preferences, etc. 

Parents must suitably adjust their financial goal accordingly, to let the investments stay relevant. Similarly, one should also review investment performance regularly. This ensures that any shortfall in the portfolio performance may be rectified well within time, and the goals may be achieved in a time-bound manner. 

With a child’s education and career planning being one of the significant roles and goals for parents, one must adopt a systematic approach towards such goals.