Financial Planning: How you may accumulate Rs 1 crore for your child by their 18th birthday
Financial Planning: Starting to invest early is always a good strategy to accumulate a large corpus. Likewise, if you want to create a large corpus for your child by their 18th birthday, the best time to start investing is at the time of their birth. Mutual fund investment through a systematic investment plan (SIP) can be one of the options for this case.
Mutual Fund SIP: What do you want for your child? A good standard of living, high life values, and quality education. How do you fulfil most of these requirements—through money? While your standard of living depends on your monthly earnings, short-term investment returns, and inheritance property, you need to think of long-term investment for your child's higher education.
Higher education in India can be expensive, and if you want to send your child abroad for study, you may need substantial money.
For that, the best time to start investing is when your child is born.
So that by the time your child is ready for their graduation and then higher education, you have a substantial corpus.
Mutual fund investment through SIP can be one of the options for building a large corpus by the time your child turns 18.
For that, you don't need a large monthly investment.
Starting with just Rs 5,000 and Rs 10,000 in monthly SIPs, one can gather a substantial fund for their children.
Here's how one may do that:
What if you start with a Rs 5,000 monthly SIP?
If you invest Rs 5,000 a month through SIP for 18 years, and get a 12 per cent annul return on your investment, then your total investment in 18 years will be Rs 10,80,000, long-term capital gains will be Rs 27,47,196, and the expected amount will be Rs 38,27,196.
What if you opt for a step-up SIP starting with Rs 5,000?
Here, if you opt for a step-up SIP and increase your amount by five per cent every year, then your invested amount in 18 years will be Rs 16,87,943.
At a 12 per cent annual return, your long-term capital gains will be Rs 34,57,451, and the expected amount will be Rs 51,45,394.
What if you opt for a Rs 10,000 monthly SIP?
If you start a Rs 10,000 monthly SIP at the time of your child's birth, in 18 years, your invested amount will be Rs 21,60,000, and at a 12 per cent annual return, long-term capital gains will be Rs 54,94,392, and the expected amount will be Rs 76,54,392.
What if you opt for a Rs 10,000 step-up monthly SIP?
If you start a Rs 10,000 monthly SIP and increase the amount by five per cent every year, your invested amount will be Rs 33,75,886, while at a 12 per cent annual return, your long-term capital gains will be Rs 69,14,901, and the expected amount will be Rs 1,02,90,788.
Thus, you see that even if you get a 12 per annual return, in 18 years, starting with Rs 10,000 SIP and increasing the amount by five per cent every year may help you get over Rs 1 crore for your child.
If you get a 15 per cent annual return on your SIP investment, you can accumulate the same amount in just 16 years.
(Disclaimer: The article is for knowledge purposes only. Do your due diligence or consult an expert for your financial planning)
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