Need Expert Advice?Our Gurus Can Help

Ramalingam Kalirajan |10872 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 04, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jul 07, 2025Hindi

Sir, please tell me the best investment plans for child having age below one year

Ans: You have made a smart move by planning early for your child’s future. Starting before age one is ideal. It helps in building a solid corpus for education, marriage, or any future need.

Let’s now look at how to plan a strong investment structure from all angles.

» Understand the Time Horizon

– Your child has 17+ years before college.
– This is a long-term investment window.
– It allows you to choose equity-focused investments.
– Compounding works best over such long horizons.
– Avoid locking money in rigid traditional instruments.

» Avoid Traditional Child Plans and Endowments

– Most endowment or child insurance plans give low returns.
– They usually yield 4% to 5% annually.
– These are not suitable for education goal planning.
– Mixing insurance with investment is not efficient.
– It is better to keep insurance and investment separate.

» Stay Away from ULIPs and LIC Investment Policies

– ULIPs have high charges in the initial years.
– Returns are not consistent or transparent.
– LIC’s endowment plans give low maturity value.
– Most plans lack flexibility and liquidity.
– If you already have such plans, consider surrendering.
– Reinvest that amount in mutual funds systematically.

» Focus on Equity for Long-Term Growth

– Equity mutual funds help beat inflation in long run.
– They have potential to deliver higher returns.
– You can start SIPs of even Rs 500 monthly.
– Gradually increase SIPs as income grows.
– Diversify across multiple equity fund categories.

» Choose Actively Managed Mutual Funds

– Do not invest in index funds for child goals.
– Index funds copy the market and offer no active management.
– They underperform in falling markets.
– No downside protection is available in index funds.
– Instead, opt for actively managed equity funds.
– Experienced fund managers guide the portfolio strategy.
– They shift allocations based on market cycles.

» Avoid Direct Mutual Funds

– Direct plans do not give advisory or support.
– You may miss rebalancing at the right time.
– Many investors pick wrong funds or continue poor performers.
– A MFD (Mutual Fund Distributor) with CFP credentials adds great value.
– You get goal mapping, performance tracking, and expert guidance.
– Regular plans provide this support for a small fee.
– That support is crucial for child education goals.

» Mix Categories for Balanced Growth

– Use a combination of large-cap and flexi-cap funds.
– Add a small-cap fund in small proportion for high growth.
– Consider an equity & debt hybrid fund for stability.
– Do not go overboard with sectoral or thematic funds.
– Avoid funds with high volatility or low consistency.

» Start SIP Immediately and Increase Yearly

– Start monthly SIPs right away.
– Even small amounts matter when started early.
– Increase SIPs every year by 10-20% as salary grows.
– This step boosts the future value significantly.
– Use step-up SIP facility where available.

» Open a Minor Account and Track Separately

– Create a mutual fund folio in your child’s name.
– Use your name as guardian till age 18.
– This builds an emotional connect and financial discipline.
– It also keeps funds segregated from general investments.
– Avoid premature withdrawals from this corpus.

» Add PPF for Debt Component

– Public Provident Fund is ideal for child’s debt allocation.
– It gives tax-free returns and is government-backed.
– Lock-in period is 15 years, which suits child goals.
– Invest Rs 12,000 per month or Rs 1.5 lakh annually.
– Do not withdraw from PPF till maturity.

» Do Not Use Sukanya Samriddhi Yojana (SSY)

– SSY is only for girl children.
– Even for them, liquidity is limited.
– Withdrawals allowed only after 18 or for marriage.
– Returns are not market-linked and may underperform equity.
– Use better flexible instruments like mutual funds and PPF.

» Avoid Real Estate and Gold for Child Planning

– Property needs large capital and has liquidity issues.
– Maintenance cost and legal hassles are extra burden.
– Gold has been underperforming against equity in the long term.
– Physical gold carries risk of theft and impurity.
– Instead, invest in productive and flexible options.

» Set Goal Amounts and Track Progress

– Estimate future cost of education at current prices.
– Use a 10-12% inflation factor over 18 years.
– Break the target into short-term, medium, and long-term milestones.
– Track the corpus annually and rebalance if needed.
– Stay disciplined even if markets fall temporarily.

» Add NPS as an Optional Long-Term Tool

– Not mandatory, but can be used in child’s name post-18.
– NPS has lock-in but charges are low.
– Useful only if you want to gift child a retirement fund.
– Not suitable for education corpus.

» Avoid Annuities for Children

– Annuities are rigid and give low returns.
– They are meant for retirement income.
– They don’t suit children’s education or growth planning.
– No flexibility to withdraw for child’s future needs.

» Taxation Awareness for Future Withdrawals

– Equity MF gains are tax-free up to Rs 1.25 lakh LTCG.
– Above that, taxed at 12.5%.
– Short-term gains taxed at 20%.
– Debt MF taxed as per income tax slab.
– Plan redemptions smartly across years to reduce tax.

» Have a Separate Emergency Fund

– Do not dip into child fund for emergencies.
– Keep 6 months of expenses in liquid fund or bank FD.
– It protects long-term goals from short-term pressures.

» Buy Term Insurance for Parents

– If earning parent is no more, child goals suffer.
– Take a term plan of 15-20 times of annual income.
– Premium is low when taken young.
– No need to take child insurance.
– Child is not the breadwinner and doesn’t need insurance.

» Health Cover Is Equally Important

– A medical emergency can derail investments.
– Take Rs 10–25 lakh family floater plan.
– Add Rs 5–10 lakh super top-up as well.
– Keep child added in the policy from start.

» Include Your Spouse in Financial Planning

– Both parents should be aware of child plan.
– Keep folio details, goals, SIPs transparent to each other.
– In case of death, other parent can continue investments.

» Keep Investing Even During Market Falls

– Don’t stop SIPs during crashes.
– Falling NAV means more units bought.
– That boosts returns over the long term.
– Emotional investing leads to poor decisions.
– Stay systematic, not reactive.

» Use Gift Funds and Bonuses to Add Lumpsum

– Yearly bonus or gifts can be used for one-time investments.
– This supplements SIPs and accelerates growth.
– Invest lumpsum in staggered tranches, not at one go.

» Review Portfolio Every Year

– Check fund performance annually.
– Replace underperformers after 2–3 years of poor show.
– Do not change funds frequently based on noise.
– Stick to your goal plan and rebalance yearly.

» Start With Rs 5,000–Rs 10,000 Monthly SIP

– Increase it based on affordability.
– Higher SIP ensures early achievement of goals.
– For age 0–1, even Rs 3,000 monthly can create value.

» Open a Will or Nomination for All Investments

– Nominate your spouse for mutual funds and PPF.
– Keep documents in order and share access with spouse.
– This avoids legal delays in future.

» Final Insights

– Starting early is your biggest strength.
– Stay focused and consistent over 18–20 years.
– Avoid complex, low-return, or rigid options.
– Keep goals, returns, tax, and liquidity in balance.
– Child’s future depends on your planning discipline today.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.