Planning for your child’s future? From NPS Vatsalya to mutual funds, here’s what you need to know

Financial planning for a child’s education, marriage, and eventual retirement is one of the most important tasks for parents. Financial experts emphasised that understanding inflation and investing early can significantly impact the wealth you accumulate for these milestones.

In a financial conversation with Zee Business, Hrishikesh Palve, Director-Products, Anand Rathi Wealth Limited, and Kshitiz Mahajan, Managing Partner & CEO, Complete Circle Wealth Solutions, explained how parents can approach this and plan accordingly for their child's future.

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Impact of education inflation

Palve highlighted that educational inflation has consistently grown at a quicker pace than overall inflation. The cost of education increases by approximately 9 per cent each year, while general inflation stands between 2.5 per cent and 6 per cent.

For example, the cost of higher education at premier institutes like IIM has grown from its 2000 value of Rs 1.5 lakh to its present value, which ranges between Rs 20 lakh and Rs 25 lakh. This demonstrates that inflation assessment needs to take priority during long-term financial planning.

Using SIPs for long-term wealth creation

Plave recommended using SIP (Systematic Investment Plan) as a safe and effective way to grow wealth. A monthly investment of Rs 6000, and increasing it by 10 per cent each year, will result in an accumulated amount between Rs 1.4 crore and Rs 1.5 crore after 20 years, which is enough to fund a child's higher education. For both wedding expenses and retirement planning, step-up SIPs help provide a method to accumulate necessary funds throughout the years.

When should you start investing? The importance of timing and compounding

Mahajan established that investment timing constitutes a fundamental requirement for success. Starting early, even with smaller amounts, allows compounding to work its magic. A monthly SIP of Rs 2,000 started for a one-year-old can grow to about Rs 16 lakh over 15 years.

If started later, the same corpus requires significantly higher contributions. He emphasised adjusting for inflation—averaging around 6 per cent—to realistically project future expenses.

Which investment options are best for your child?

According to the experts, parents have several options to consider when it comes to investment options:

NPS Vatsalya

A government-backed scheme, which combines equity and debt and can deliver returns between 10–13 per cent, with partial withdrawal allowed for education after 18 years.

Children’s mutual funds

They are goal-oriented funds with expected returns of 13–14 per cent and typically a five-year lock-in period.

Hybrid funds

The fund provides a balanced investment approach through its combination of equity and debt assets, which delivers stability for medium-term periods, though long-term growth is limited.

Open-ended equity funds

The open-ended equity funds provide an ideal investment solution for long-term wealth accumulation as they have no lock-in restrictions and allow investors to start with a minimum investment of Rs 500 while generating potential returns of 15 to 16 per cent, leveraging the power of compounding over time.

The experts emphasised that discipline and early investment and step-up SIPs serve as essential elements for achieving maximum returns. Starting early—even with small amounts—can turn what seems like an impossible financial target into a very achievable goal over time.

The process of planning a child's future requires more than saving; parents need to invest their money wisely while considering inflation and making use of compounding effects. The parents who begin their saving process at an earlier time will need to invest less money each month while achieving more financial protection for their child's future achievements.