Make Your Child a Crorepati with a Small Investment in Mutual Funds
Ankit Agrawal
Results-driven financial expert with 7+ years of experience, leading Right Financiers, a renowned insurance and investment firm since 2001. Partnering with India’s top financial providers, we deliver tailored investment, insurance and risk management solutions, empowering clients to achieve long-term objectives with maximum returns and security.
Introduction
Every parent dreams of giving their child the best—be it quality education, a lavish wedding, or a financial cushion for their future. While aspirations run high, many are held back by the perception that wealth creation demands huge capital. However, what if we told you that you could make your child a crorepati by the time they turn 18 or 25, by investing just a small sum regularly in mutual funds? Thanks to the power of compounding, long-term investing, and disciplined planning, this dream is not only realistic but also surprisingly attainable.
The Magic of Compounding
The cornerstone of wealth creation through mutual funds lies in compounding. Simply put, compounding is the process by which the returns generated by your investments are reinvested to earn further returns. The longer you stay invested, the greater your returns grow, almost exponentially over time.
Let’s say you invest ₹5,000 monthly in an equity mutual fund for 18 years at an average annual return of 12%. By the time your child turns 18, the corpus will have grown to approximately ₹30 lakhs. Stretch this investment to 25 years, and the same SIP (Systematic Investment Plan) can grow beyond ₹1 crore. That’s the power of time in your favour.
Why Mutual Funds are Ideal for Children’s Future Planning
- Affordability: One can start investing in mutual funds with as little as ₹500 per month.
- Diversification: Mutual funds spread your money across various sectors and companies, reducing the risk associated with individual stocks.
- Professional Management: Fund managers with deep market knowledge manage your investments.
- Tax Efficiency: Long-term capital gains in equity mutual funds are taxed favourably. Investments in ELSS funds offer tax deductions under Section 80C.
- Flexibility: You can modify, pause, or increase your SIPs as your income grows.
Investment Options for Building a Crorepati Corpus
When it comes to building a long-term portfolio for your child, equity mutual funds should be your preferred vehicle, particularly those with a focus on long-term capital appreciation.
The following types of mutual funds are worth considering:
- Equity Mutual Funds: Ideal for long-term investments as they offer higher returns by investing in stocks.
- Hybrid Funds: A mix of equity and debt, suitable for slightly conservative investors.
- Children’s Gift Funds: These are specially designed mutual fund schemes for minors, with a lock-in period and investment focus on long-term goals.
- ELSS (Equity Linked Saving Scheme): Comes with a 3-year lock-in and tax benefits, suitable for disciplined long-term savings.
How Much Should You Invest?
The amount depends on your child’s age and your desired corpus. Below are some illustrative examples assuming an annual return of 12%:
Investment Duration | Monthly SIP (₹) | Target Corpus |
15 years | ₹3,500 | ₹25 lakhs |
18 years | ₹6,000 | ₹50 lakhs |
25 years | ₹7,000 | ₹1 crore |
If you start early, even a small investment of ₹2,000-₹5,000 per month can build massive wealth over time. The key is to start as soon as possible and stay invested consistently.
Benefits of Starting Early
- Lower Financial Burden: Smaller SIPs over longer durations reduce pressure on your finances.
- Time Advantage: A longer investment horizon enhances compounding returns.
- Goal Clarity: Early investing allows better planning for education, overseas studies, or marriage.
- Stress-Free Planning: Avoids last-minute loans or liquidation of assets.
How to Start a Mutual Fund Investment for Your Child
- Open a Minor’s Account: You can invest in your child’s name through a mutual fund folio by submitting their birth certificate and KYC documents.
- Set Up SIP: Choose the scheme and amount. Automate it to ensure regularity.
- Nominate Yourself: As a guardian, you’ll manage the investment until the child turns 18.
- Review Annually: Monitor performance yearly and adjust SIP amounts as your income grows.
Mistakes to Avoid
- Delaying Investments: The later you start, the more you’ll have to invest monthly to reach the same corpus.
- Ignoring Equity Funds: Being overly conservative by sticking to debt funds limits your potential to create wealth.
- Inconsistent SIPs: Skipping SIPs defeats the purpose of disciplined investing.
- Lack of Goal Clarity: Without a target, it’s hard to assess if you’re saving enough or too little.
Real-Life Case Study
Consider the case of Ramesh, a salaried professional who began investing ₹5,000 per month in a mutual fund SIP when his daughter was 1 year old. By the time she turned 18, his disciplined investing yielded ₹30+ lakhs—enough for a top-tier college education. He continued the SIP, and by age 25, she had a corpus of ₹1 crore to kickstart her career or a business.
Conclusion
Becoming a crorepati is no longer a distant dream reserved for the wealthy. With the right mindset, disciplined saving, and regular SIP contributions, you can secure a bright and financially strong future for your child. Starting early, even with a small amount, can create a huge impact thanks to compounding. Let your money work as hard as you do for your child’s dreams.
Final Tip:
Start today. The earlier you begin your journey, the closer your child will be to achieving financial independence and living a life driven by choice rather than compulsion.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
Disclaimer
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