SIP Tips: For the financial strength of the child, you must know about the 18x15x12 formula of Mutual Fund SIP..

Be it a son or a daughter, every parent dreams that their child's future is bright and secure. They want the child to get the best education, fulfill all his dreams, and never face a shortage of money in life. But to turn this dream into reality, strong financial planning is also needed (Financial Planning for Kids).

In today's era of inflation, a large amount is needed for a child's higher education, marriage, or starting a business. In such a situation, the question arises, where to invest? FD, PPF, or Sukanya Samriddhi Yojana are good options, but if you want to beat inflation and create a huge fund, then there is nothing better than a Mutual Fund SIP. Here is some information about such a magical formula of MF, by starting which at the right time you can make your child a crorepati at the age of 18.

The magical formula to make you a millionaire: 18x15x12
If you want to create a big fund for your child by the age of 18, then you will have to adopt the 18x15x12 formula. Let us understand this formula in detail:

18 = Investment period (in years): This means that you have to start this investment with the birth of the child and continue it till he turns 18. The longer the time in SIP, the bigger the benefit.

15 = Monthly SIP amount (in thousands): This means that you will have to do a SIP of ₹15,000 every month in the name of your child.

12 = Estimated annual return (in %): An average annual return of 12% is considered for long-term investment in mutual funds. Sometimes it can be even more than this, depending on the performance of the market.

Understand the complete maths of becoming a crorepati.

Now, let's see how this formula works and how a fund of more than Rs 1 crore is created in 18 years.

Investment Parameter Amount/Period
Monthly SIP ₹15,000
Investment period 18 years (216 months)
Total invested amount ₹32,40,000
Estimated annual return 12%
Interest earned (Estimated) ₹74, 35, 929
Total fund after 18 years ₹1,06,75,929
It is clear from this calculation that if you follow this SIP Investment Formula with discipline, then your child will be the owner of ₹1,06,75,929 crores at the age of 18. With this amount, you can fulfill his higher education, marriage, or any big dream without any financial worries.

Why is a Mutual Fund SIP so powerful?

Power of Compounding
It is also called the eighth wonder of the world. In this, you get interest not only on your investment but also on the interest earned from that investment. Over time, this interest adds up and turns your small investment into a big fund.

Rupee Cost Averaging
When you invest every month through SIP, the risk of market fluctuations is reduced. When the market falls, you get more units for the same money, and when the market rises, you get fewer. In the long term, it averages out your purchase cost, which improves your returns.

Discipline and flexibility in investing
Through SIP, a fixed amount is invested from your account every month, which maintains the discipline of investment. Also, it is flexible too. You can increase your SIP amount anytime (called SIP Top-up), or you can stop or withdraw it if needed.

Frequently Asked Questions (FAQs)

Q1: Is it guaranteed that you will get 12% returns in mutual funds?

A: No, mutual funds are subject to market risks, and there is no guarantee of returns. However, in the long term (15-20 years), good equity mutual fund schemes have given returns of 12% to 15% or even more on average.

Q2: What if I cannot invest ₹15,000 every month?

A: You can start a SIP with as small an amount as you want, even ₹500 per month. Start according to your capacity, and as your income grows, you can increase the SIP amount. Even if the goal is small, it is important to start.

Q3: Why is SIP better than PPF or Sukanya Yojana for investing for a child?

Answer: PPF and Sukanya Samriddhi Yojana (SSY) are schemes with safe and guaranteed returns, but their returns are often between 7%-8%. On the other hand, SIP has a little market risk, but the potential to beat inflation in the long term and create a huge fund is also much higher.

Question 4: How to start SIP in the name of a child?

Answer: You can start SIP in the name of a child with the help of any mutual fund company's website, app, or a certified financial advisor. For this, the child's birth certificate and KYC documents of the parents (guardian) will be required.

Question 5: Can I withdraw this money before I am 18 years?

Answer: Yes, you can withdraw your money anytime in open-ended mutual fund schemes, but experts advise not to withdraw the investment made for the child's future until the target is achieved, so that the full benefit of compounding can be availed.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.