An HSBC study shows that 51% of parents in India yearn for their child to build a successful career after they graduate. But socio-economic mobility being comparatively restricted here, education takes on a greater significance. And if the education given to your child is of the best quality, their chance of having a better future is likelier.
Parents have the same aspiration when it comes to their child’s wedding. They want the wedding to be held with much pomp and fanfare. But all this requires money – in fact, a pot of money.
Both your child’s education and wedding are expensive affairs. If you look at the inflationary trends of the last two decades, you should expect the costs to spiral further. However, this is not to dither you or make you jumpy about the future. There is still ample time for you to rack up an enviable kitty to ensure good things happen to your child. One of the ways in which you can fortify your child’s future is by investing in a Systematic Investment Plan [SIP].
In this article, let’s see how you can make your child’s [and your] dreams come true through the process of investing.
Did you know that the cost of nursery education can range anywhere between Rs. 60,000 to Rs. 3 Lakh? And the price escalation does not stop here. Parents in India spend an average of Rs. 12.25 Lakh on their child’s education. But if your child wants to go abroad for a higher degree, this could cost you around Rs. 1 crore.
As for weddings, here is a statistic that will paint the entire picture. The Indian wedding industry accounts for more than Rs. 1 Lakh crore, according to a report by Reliance Money. And this number is fast increasing at the rate of 25~30% per year.
Invest and relax
There is no point looking at these numbers and working up a brainstorm. If you have time on your side, all you need to do is to set yourself a long-term financial plan. Once you do that, you decide to invest. That’s because keeping your money in a bank account does very little for you or your children. The money just sits there all day long, earning very little interest. In fact, the 3.5~4% interest you earn is lesser than the rate of inflation. That means you would actually lose money in the long run if it remains idle in your bank account.
Instead, it is better to invest in mutual funds. Equity funds offer returns anywhere between 10~15% per annum. In fact, the returns on some funds can be even higher. By investing for the long term through Systematic Investment Plans [SIP], you can amass a substantial corpus of money. You can use any online SIP calculator to identify how much you need to invest each month in order to reach your specific financial goals.
Many mutual fund houses offer special child plans that are designed to help parents meet the various requirements at different stages of their child’s life. Once you identify a particular plan, you should invest regularly without fail. Over time, the small investments you make turn into a big corpus. That’s why experts suggest that parents should start investing for their child’s future from a very early age. This allows you to create a large corpus without putting a strain on your monthly budget.
Consider the following example- By investing just Rs. 10,000 per month in a mutual fund, you can create a sum of Rs. 1 crore in 20 years, assuming the rate of return is 12% per annum.
However, if you have just 10 years time to create the same amount, you would have to invest more than Rs. 40,000 per month! This can put a tremendous pressure on your finances.
A common tip for road trips is – start early, drive slowly and reach safely. The same can be said for investments. Think of it this way – the moment your child is born, you have exactly 18 years to come up with a graduation gift for your child. So, start investing today!