Investing for a child’s future can be an effective way to build a potential corpus for education, marriage, or other long-term goals. Parents or guardians can invest in mutual funds on behalf of their children using either a minor account or a joint account with nomination.
Choosing the right investment approach
When planning to invest for a child, the choice of fund should match the investment horizon and risk tolerance. For long-term goals of 10-15 years, equity-oriented mutual funds may offer growth potential, whereas hybrid or debt funds could be considered for medium-term goals of 3-5 years.
Steps to invest in mutual funds for a child
- Open a minor account: Mutual fund investments for a child require a KYC-compliant minor account. A parent or guardian acts as the guardian investor until the child reaches the age of majority.
- Select suitable funds: Decide on equity, hybrid, or debt funds depending on the child’s investment horizon and potential growth expectations. Avoid funds that do not align with the risk profile.
- Decide the investment mode: Investors can choose a lump sum investment or an SIP (systematic investment plan). SIPs are useful for gradually building a corpus and averaging investment cost over time. Using an SIP mutual fund calculator can provide an estimate of potential returns. Keep in mind, though, that these returns are not guaranteed, but only projections.
- Regular monitoring: Periodically review the investment portfolio and adjust contributions if needed. Ensure that the investments continue to align with your child’s financial goals.
Considerations
- Short-term market fluctuations may affect the potential returns.
- Taxes on capital gains and dividends should be understood and planned for. Any historical information or past data should not be taken as an indication or guarantee of any future performance.
- Investments should be periodically reviewed to ensure they align with the child’s financial objectives.
It is advisable to consult a financial planner or investment advisor before investing in mutual funds for a child. This ensures that the selection of funds, investment horizon, and contribution strategy are appropriate for the intended financial goals.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
