How to save for your child's future expenses and your retirement planning?

How to save for your child's future expenses and your retirement planning?

by 5paisa Research Team Last Updated: Nov 11, 2021, 12:15 PM IST

Financial planning is a very crucial aspect of every individual’s life in order to survive in this world, so it's necessary to adequately plan long term goals such as retirement as well as children's raising.

Raising a child and retirement planning is not an easy task. With increasing inflation, it has become necessary for every individual to save and create some funds for these long-term goals. Preparing a financial plan is tough, and working according to a financial plan can be difficult for some people as everyone cannot afford to pay for the preparation of a financial plan. And this is where the importance of mutual funds is realized.

A mutual fund offers schemes, which may sometimes end up causing stress about future financial goals. Majorly, a financial plan is needed in case of retirement and children’s education expenses, where the finances may take a hit if not planned appropriately.

Solution-oriented funds is one of the best schemes offered by mutual funds. The portfolio of these funds is generally designed in such a way that investors can achieve their specific goals related to retirement and children’s education as well as marriage. As per the Association of Mutual Funds of India (AMFI), assets under management (AUM) of solution-oriented funds have increased from Rs 19,776.71 crore (Retirement Fund AUM - Rs 10,647.82 crore and Children’s Fund AUM- Rs 9,128.89 crore) in October 2020 to Rs 29,246.61 crore (Retirement Fund AUM- Rs 16,294.85 crore and Children’s Fund AUM- 12,951.76 crore) as of October 2021. That is the total AUM of solution-oriented funds, which have risen by approximately 47% in just one year.

Types of solution-oriented funds:

Retirement fund: To cater to the individuals’ retirement planning goals, various asset management companies (AMC) offer retirement funds. This fund assists the individual and provides a financial plan by preserving and creating a corpus for retirement. Investors with higher risk tolerance can invest in equity while investors with lower risk tolerance should invest in debt. And, investors willing to invest in both instruments can invest in a hybrid scheme. Generally, investors should invest in equities in their earning stage and when investors’ age is nearing retirement, then they should switch to debt. This will ensure higher returns with capital preservation. These funds generally have a lock-in period of five years as these funds are shaped for long-term goals. 

Children’s fund: With the increasing cost of education, a financial plan for children’s education has become vital. Without an adequate financial plan, it’s very difficult to educate our children these days. Children’s fund helps investors to create a corpus for their children’s education expenses or marriage expenses. Investors should invest in these funds when either child is yet to be born or just after the child is born. This will help investors accumulate corpus till the child attains the age of schooling or the age of marriage. Investors can invest in equity, debt and hybrid schemes according to their risk tolerance, needs, and goals. These funds generally have a lock-in period of five years.

The following table depicts the top three funds based on a two-year return along with their AUM:

Fund Name  

2-Year Return  

AUM (in crores)  

Retirement Fund  

HDFC Retirement Savings Fund - Equity Plan  

34.13%  

₹1,973.02  

ICICI Prudential Retirement Fund - Pure Equity Plan  

31.98%  

₹124.56  

HDFC Retirement Savings Fund - Hybrid- Equity Plan  

24.37%  

₹748.35  

Children’s Fund  

UTI CCF- Investment Plan  

31.59%  

₹575.59  

Tata Young Citizens Fund  

29.72%  

₹277.45  

HDFC Childrens Gift Investment Plan  

25.64%  

₹5,246.98 

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