Mutual Fund Investing for Young Parents

Published On: 30-Oct-2019

While Indians have historically been investing in physical assets like gold, real estate, etc., the millennials are reflecting an increasing preference towards investing in financial assets. Mutual funds are steadily emerging as a preferred investment option, as also being reflected by steady monthly SIP inflows (Source – Association of Mutual Funds in India, AMFI). 


Mutual Fund Investment For Young Parents


The young parents of today certainly have a good reason to invest in mutual funds online. When it comes to saving and investing for the child, one always wishes to have as larger an investment corpus as one may build. With the luxury of time in hand, you may also choose to invest in equity funds, as the equities are known to yield valuable returns in the long run. Further, mutual funds may also be used to switch the investment portfolio into safer assets as you attain the financial goal to preserve the accumulated investment corpus. Considering the specific goals of a child's education and marriage, here are some key investment considerations for young parents:

1.Investing the Gifts

 – Children often receive monetary gifts, right from the time they are born, and this ritual usually tends to continue until teenage. Instead of letting such gifts stay idle as cash or spending it over unwanted things, you may choose to deposit it in a dedicated bank account. You may subsequently invest such funds in equity funds to make the money work harder you and allow it to grow. 

2.Investing through SIP

 – SIP allows you to set up automatic investments in mutual funds at regular intervals. As such, it enables you to make consistent investments for your financial goals. Just like it is said, 'small drops of water make an ocean,' small savings may help you accumulate a significant amount over a period. This may help you build a healthy corpus for your child's aspirations by the time he/ she becomes a major — for example, Rs. 10,000 invested per month in a mutual fund scheme generating 12% annual returns may help you accumulate Rs. 76.54 lakhs over 18 years.

3.Starting to Invest Early

You must start investing for your child's future soon after his/ her birth. Equity market investments tend to revolve around spending more' time in the market', instead of 'timing the market' and by starting to invest early, you allow more time to the investments in the market to grow and prosper. 

4.Asset Allocation

 – There might be short term goals as well as long term goals linked to the child's future, and you must carefully choose the mutual funds scheme to invest in based on the goals. For example, savings for child's education will require annual withdrawals towards payment of school fees and hence, such savings should not be invested in equity funds, for such funds may be volatile over the short term.

5.Long Term Goals

 – Long-term goals tend to enjoy higher investment period and hence, you may afford to invest towards such goals in small-cap schemes. Long-term horizon for investing in such schemes allows the investors to realise the growth potential of small cap companies over that period, helping the funds generate better returns over the long-term. 

6.Mutual Fund Child Plans

 – As per SEBI Guidelines, mutual funds may offer specific children's funds, which form part of solution-oriented schemes. Such schemes carry a lock-in period of 5 years or till the child becomes 18 years old. While child plans might not be any different from hybrid and equity schemes available, the lock-in period restriction helps the parents sustain any impulsive redemption. This makes the mutual fund for the child a preferred investment option for the young parents. 

7.Clubbing Tax Plans with Child's Goals 

– You may also consider clubbing your tax saving plans with your child's goals. Equity Linked Savings Schemes (ELSS) funds carry a lock-in period of three years, and with longer investment horizon for child goals, the lock-in restriction may be easily absorbed with a longer-term investment horizon. Further, with special tax rates of only 10% on long-term capital gains (LTCG) from equity funds (with LTCG exemption limit of Rs. 1 lakh a year), you may aim to save on taxes and build a healthy portfolio over time to cherish your child's dreams.

While you may have already taken the first step by investing in mutual funds for your child, make sure that you take the remaining steps earnestly as well. Further, with so many investing options as a young parent within mutual fund universe itself, you must make an informed decision in the best interest of your child. 


The chart/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of asset allocation. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.

The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her or their own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws/finance bill 2017. Any action taken by you on the basis of the information contained herein is not intended as on offer or solicitation for the purchase and sales of any schemes of UTI mutual Fund. Please read the full details provided in SID and SIA carefully before taking any decision.

UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.