planning your children’s futures

Mutual funds are ideal investment options for planning your children’s futures

We have seen that equity is the best long term investment choice for our children. Good equity mutual funds through systematic investment plans (SIPs) are ideal investment options for children as they are growing up. Long term capital gains in equity funds are tax free. You can even save taxes under Section 80C by investing in Equity Linked Savings Schemes (ELSS). Financial planning for children is a dynamic process. As your children approach their life milestones like higher education or marriage, you need to rebalance your investment portfolio to have a greater allocation to debt investments where the risk is considerably lower, while you still earn a decent return. There are enough mutual fund products across risk profiles like equity funds, balanced funds, monthly income plans, income funds etc, that parents can choose when their child is growing to optimize the returns while ensuring that the risk profile of their investment portfolio is consistent with the financial plan for their children.

Parents can also opt for mutual fund child plans. Child plans also help earmark funds for specific goals, dividing the portfolio into several categories. This makes it simpler for a parent to monitor the investment for a particular goal. This segregation is important because each goal has a different time frame and, therefore, requires a different investment mix. For example, your child’s college or higher education may only be two or three years away and while his or her marriage may be five or six years away, prompting different investment choices for these two goals.