Every November, as we celebrate Children's Day, we honour the innocence, joy, and limitless potential of childhood. Parents buy gifts, plan outings, and create memories. But what if this year, you gave your child a gift that keeps giving - one that grows over the years, shaping their aspirations into reality? A Systematic Investment Plan (SIP) in mutual funds could be that lifelong gift of financial security and opportunity.

Children's Day is not just about celebrating youth; it is also a reminder of your role in nurturing their future. In a world where expenses for education, skill development, and lifestyle are rising sharply, the best gift a parent can offer is financial preparedness. Investing early through SIPs can help you build the foundation for your child's future.

Why saving for your child matters more than ever?

The cost of raising a child in urban India has multiplied manifold over the last two decades. Cost of education for professional degrees like MBBS, MD, B Tech, MBA etc have multiplied several times in the last two decades. With growing affluence and rising aspirations, many parents want their children to study in foreign universities, but the cost of overseas education has multiplied manifold when you consider Rupee depreciation. While parents always intend to save "someday," inflation waits for no one. Children's Day 2025 can be your reminder that the best time to start planning for your child's future.

SIPs: Small steps that build big futures

A Systematic Investment Plan (SIP) is one of the simplest and most effective ways to invest in mutual funds. You commit to investing a fixed amount every month into a chosen fund-no matter what the market condition is. Over time, this approach evens out market volatility through a concept known as rupee-cost averaging. It can help you resist succumbing to behavioural biases which harms your financial interest. It builds the habit of savings and discipline, the same kind of discipline, parents expect their children to develop.

Countries like India, China, and Russia have significantly increased their gold reserves while sharply reducing their holdings of US T-Bills. Even long-time allies like Japan and Germany are diversifying.

Building a financial goal around your child's milestones

Every parent's journey is filled with milestones-first steps, first words, first day at school, first big dream. Each of these moments can also mark a financial milestone. The trick is to convert life events into planned savings goals.

• Short-term goals (up to 5 years): Planning for school fees, extracurricular activities, or gadgets.
• Medium-term goals (5-10 years): Saving for higher education or skill courses.
• Long-term goals (10+ years): Aimed at college abroad, postgraduation, wedding or even the financial safety net for your child's adulthood.

By mapping your SIPs to specific goals, your investments gain purpose and direction.

Power of Compounding: Time is the invisible ally

Parents often hesitate to start because they think their savings are not "big enough." It is not about, how much you start with but how soon you start. In the context of SIPs for children, time can be your greatest ally. The earlier you begin, the longer your money gets to compound. For example, if you want to save Rs 30 lakhs (at current cost) for your child's education in 10 years, then you have to invest Rs 20,268 every month (assuming return of 12.62% of Sensex and inflation rate of 5%) to achieve your goal*. If your time horizon is only 5 years, then you need to save Rs 45,628 every month*.

*Disclaimer: The above illustration is provided as per AMFI Best Practice Guidelines no. 135/BP/ 109 /2023-24 dated November 01, 2023 read with 135/BP/ 109-A /2023-24 dated September 10, 2024 and as amended from time to time to define the concept of compounding. Past performance may or may not be sustained in the future and is not a guarantee of any future returns. Investors should not consider the same as investment advice.

How to Pick the Right Mutual Funds for Your Child's Future?

Choosing the right fund is like selecting the right educational path-it depends on your time horizon and risk appetite.

• Debt Funds : Suitable for short-term needs or when your child's goal is near (less than 3 years). They may potentially aim to help preserve capital and meet short term requirement like tuition fees.
• Hybrid Funds : Suitable for medium-term goals (3 - 5 years or more). They mix equity and debt to balance risk and return.
• Equity Funds : Ideal for long-term goals of more than 5 years. They aim to offer high growth potential and beat inflation gradually over time.

Discipline and habit formation

One of the understated benefits of starting a SIP is the discipline it builds. You start prioritizing long-term goals over short-term indulgences and manage your expenses more efficiently. Your children can also learn a valuable lesson in personal finance from an early age. By the time they have their first job, they would already know that a SIP is not just about saving -it is a path to achieving their financial goals.

Gifting a SIP: A modern way to celebrate Children's Day

Lately, gifting financial instruments has become increasingly popular. Many platforms now allow you to start an SIP in your child's name or even gift mutual funds digitally. This Children's Day, instead of splurging on toys or gadgets that fade with time, consider initiating a SIP for your child. Engage your child and explain how the investment works, how the money grows with time, and why patience matters. This small exercise can help cultivate financial wisdom early on. You should always evaluate a fund's long-term performance, as well as the fund manager's track record before investing. Consult a financial advisor or mutual fund distributor if you need help in planning for your children's future.

Note - Views provided above are for investor education and awareness purpose only. Please consult your financial advisor for any investment decision applicable to your investment appetite.

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