On Children's Day - Teach Your Children! Give your kids this incomparable gift for a rich life
Parents are considered the first teachers of their children. However, from right to wrong, parents must also do something more as otherwise they will be shirking their responsibilities.
Parents are considered the first teachers of their children. However, apart from teaching children the difference between right and wrong, parents must also do something more as otherwise, they will be shirking their responsibilities. What they must do is provide timely financial lessons to their children. So, when the whole nation is celebrating Children's Day 2019, parents can pay heed to the investment advisors who are busily recommending the best investment plans to ensure a good and rich future for children and, aside from that, they must also teach their children how they can mitigate the risk involved in the investment. So, this Children's Day ensures that this is the best day when parents start giving investment lessons to their children.
And what should the lesson be on? Considering that it is the best investment option for the public, the lesson has to be about mutual funds. Why, it is comparatively risk-free and it also provides immense examples of how money can be grown. So, yes, the most important lesson is about risk - how to reduce risk to the minimum and at the same time ensure money grows at a fast clip. While in early childhood all lessons about banks and interest rates from fixed deposits, savings bank accounts and recurring deposits as well as various government schemes should be given, parents can then move on to explaining other financial options available in markets when children are in their teens.
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Speaking on mutual fund investment lessons that parents should give on this Children's Day, Harsh Jain Co-founder and COO at Groww said, "No investment product is immune to risk however, risks can be mitigated to a large extent. The first thing is to start as soon as possible. If you start early to say in your early twenties and aim for a long term goal like retirement, by the time you are 40 you would have accumulated enough corpus. The best way to achieve this goal would be via equity mutual funds. Now equity funds as an asset class can offer accelerated wealth creation and inflation-beating returns provided you invest for a longer horizon say more than 10 years. For a longer period, the impact of volatility is greatly reduced and hence your capital remains protected. So if you invest at 25 to retire at 40, your investment is at lesser risk compared to someone who invests at 32 to retire at 40. The second thing is to start investing via the SIP route. SIP is an instrument that helps you avoid the risk of timing the markets and facilitates wealth creation in a disciplined manner by averaging the cost of Investments."
Jain went on to add that the third way to mitigate your risks is to have a diversified portfolio. According to your risk profile, you can have a mix of high risk-high reward avenues and low-risk stable returns offering avenues as well. From a wealth creation perspective, investment should be in a diversified equity portfolio, you can keep 1-2 top funds under each category ( Small-cap, mid-cap, large, cap, and multi-cap).
"If you are investing in equities, make sure your time horizon is more than 10 years so that the risks balance out. To further foolproof your portfolio, invest across asset class. For instance, If you feel your investment portfolio is predominantly equity-oriented, you can add debt funds to your portfolio. You can invest a part of the corpus in liquid funds. Liquid funds will allow you to meet short term expenses as well as minimize short term losses due to equities. You can also include gold in the form of ETFs or gold mutual funds to further even out your risks," said Harsh Jain.