Q. How to secure your child's future through mutual funds?
A: All of us know that securing our children's future is a very, very important goal for every parent. The issue is how do you ensure that you are securing financial future of your children. As it happens with everything else in life there has to be certain amount of discipline and do not forget a goal like securing child future is generally a long-term goal and it is also a goal which requires you to build a large corpus. What are we talking about? We are talking about child education and marriage. These are big costs for you in your life.
First thing that you need to do is ascertain a time horizon. I would say go one step further, try and start the investment process as soon as the child is born. If it is not possible to do that at least begin in couple of years so that you will have enough time to build the kind of corpus that you want to build. So, first thing is start investing early.
Second thing is fix a time horizon. Whether you will be required this money after 16 years of 17 years and also do not forget even after that you will have another 3-4 years, because you are not going to need all this money in one go, you will actually need it gradually. So fix a time horizon. Fix a target. For that what you need to do is you need to decide and see what kind of education would you like to give it to your child and what is that education costing today, then work out inflation on that and then workout your target and then work backwards and then workout how much money you need to invest on a monthly basis or whatever your time period maybe.
Another important point that you need to factor then is what investment option should you be looking at? There are dedicated child funds which are essentially hybrid kind of funds offered also by mutual funds as well as insurance companies, but my belief is that if you are an active investor, mutual funds have a number of options for you. For example, if you have 18 years to go before you need the money for your child's education why do not you look at investing through Systematic Investment Plan (SIP) in equity funds?
Once you complete a period of 15-16 years gradually start changing the asset allocation, bring in more debt so that you can make sure that all the gains that you have made over a period of time are protected. If you follow this process whatever the target maybe you can achieve, but remember continue investment process irrespective of the market condition. Do not lose focus on your goal.
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