Secure Your Child's Future: Here Are Some Investment Strategies For Parents

Parents often exercise caution when saving for their children’s education, opting for safer investment options that, though offering lower returns, provide security

Raising children is a significant responsibility, and for parents, ensuring a high quality of life, instilling strong values, and providing a good education are top priorities. While balancing these elements requires continuous effort, early investments play a crucial role in shaping their future. Leveraging the compounding power of long-term investments underscores the importance of starting early.

The Cost of Higher Education in India

Higher education in India, especially for esteemed institutions or specialised fields, can be notably expensive. This necessitates early financial planning and preparation, ideally starting from the child’s early years or even before conception.

PPF: A Safe Bet for Education Savings

Parents often exercise caution when saving for their children’s education, opting for safer investment options that, though offering lower returns, provide security. One common choice is the Public Provident Fund (PPF), which offers tax advantages under Section 80C of the Income Tax Act, 1961.

If both parents are employed and maintain their own PPF accounts, each investing Rs 1,50,000 annually for 15 years may not create a massive corpus, but it can be substantial enough to support their child’s early education years.

Exploring Large-Cap Funds

As an alternative to PPF, parents might consider investing in large-cap mutual funds, which offer potentially higher returns with lower risks compared to mid-cap, small-cap, or thematic funds.

Large-cap funds primarily invest in well-established companies with high market capitalisations. These companies are typically more financially stable, and their stock prices tend to be less volatile. Consequently, large-cap funds generally present a lower risk profile for investments.

Unlike PPF, which offers guaranteed returns, large-cap funds do not promise assured returns. However, they have a track record of delivering consistent and stable returns over the long term, thanks to the stability and performance of the large companies they invest in.

Potential Returns from Large-Cap Funds

Critics of using mutual funds for financing children’s education often highlight concerns about market volatility potentially reducing returns. However, historical data shows that even the least performing large-cap funds have generated returns exceeding 12 per cent in the long term. This suggests that parents can build a substantial corpus to fund their children's higher education.

Solution-oriented funds designed specifically for this purpose exist, but their modest returns have not significantly aided parents in achieving their financial goals, such as accumulating sufficient funds for their children's higher education.

Investing early and choosing the right investment vehicle can help parents build a robust financial foundation for their children's educational aspirations, balancing safety with potential growth.