In India, each new generation tends to be in a better financial position than the previous one, thanks to the focus of parents on saving for their children’s future.
Parents often view saving for their children’s needs as an essential reason to invest, especially as costs continue to rise.
Proper planning for the future has become more important than ever.
Rising Education Costs: A Major Concern
In the past, parents primarily saved for traditional goals like their children’s marriage, typically investing in National Savings Certificates or long-term fixed deposits.
Today, however, the focus has shifted to higher education—such as engineering, medical studies, or even international studies—often before considering marriage expenses.
These educational goals are now just as expensive as wedding costs.
The cost of education has skyrocketed, which makes it crucial for parents to invest wisely to ensure they have the financial resources for their children’s needs.
The need for strong financial planning has never been more important.
Tackling the Growing Expense of Education
Suresh Soni, CEO of Baroda BNP Paribas Asset Management India, points out that education costs have been rising much faster than other expenses.
The inflation rate in education services is nearly double the Consumer Price Index (CPI). For example, the cost of an MBA program has increased eightfold over the past two decades.
This steep rise means that saving for education has become a heavy financial burden for many families.
Proper financial planning and early investments are crucial to avoid future financial strain.
Equity: A Long-Term Investment for Growing Wealth
To keep up with rising costs, parents need to invest in options that can outpace inflation. Historically, equity has provided the best returns over long periods—decades in some cases.
Equity investments have consistently outperformed other asset classes, making them an ideal choice for long-term wealth creation.
For example, if parents invest just Rs 9,000 monthly in a strong equity fund, they could build a corpus of over Rs 1 crore in 20 years. Starting with small, regular contributions can lead to significant growth over time.
The Benefits of Child Plans in Mutual Funds
Child plans in mutual funds offer a disciplined approach to long-term investing.
These plans often come with a lock-in period of five years or until the child becomes a legal adult, whichever comes first.
This lock-in period encourages parents to stay invested for the long term, allowing the fund managers to focus on strategic investments.
With the power of compounding, the value of the investment can grow significantly over time.
As Suresh Soni explains, the lock-in feature promotes disciplined investing, while research-driven stock selection by fund managers helps grow capital.
Parents can also opt for a step-up SIP, which increases their monthly investment over time, ensuring they stay on track to meet their children’s financial needs.
How to Start: SIP and Step-Up SIP
The best way to start saving for a child’s future is early and consistently.
A Systematic Investment Plan (SIP) allows parents to invest a fixed amount each month in mutual funds focused on their children’s needs.
A Step-Up SIP lets parents gradually increase their contributions as their income grows.
This approach can help build a larger corpus over time and better prepare for future educational or personal expenses.
Flexibility to Invest Extra Funds
Child plans also offer the flexibility to make lump-sum investments, such as annual bonuses or birthday gifts.
These additional contributions can further boost the financial fund for the child’s future.
This flexibility ensures that any extra funds can directly contribute to meeting the child’s dreams and goals.
By starting early and investing regularly, parents can build a strong financial foundation for their children, ensuring a secure future.
