You spent your entire life working hard to provide the best for your family and save for your retirement years. You are now retired and enjoying the company of your children and grandchildren. If this is your life, you are truly blessed.
Being a grandparent is one of the most joyous times of your life. You see your childhood return as you become kids once again with your lovely grandchildren. However, you want to leave a legacy for your grandkids instead of spending money on short-lived expensive gifts.
There are several policies and plans where you may invest in the name of your grandchild. However, if you want to leave a legacy for them, consider investing via SIPs commonly known as systematic investment plans.
How do SIPs work?
When you invest through a systematic plan, a certain amount is invested on a particular date in your chosen mutual funds. The amount may be directly debited from your bank account on the specified date.
Investing via SIPs has several benefits. Here are five such advantages.
- Rupee cost averaging
The investment amount is invested in chosen mutual funds at their current Net Asset Values (NAVs). Therefore, when the NAV is lower, you are able to accumulate more units. Similarly, when the NAV increases, the number of units purchased decreases. This allows you to average the total cost of your investments.
- Compounding effect
Mutual funds deliver the best returns in the long-term wherein you remain invested for five to seven years. This is because of the power of compounding. With this feature, the dividends are reinvested in the same mutual fund to accumulate more units. This helps to build wealth over the long-term.
- Investment discipline
You may be able to receive a regular income from your retirement planning initiatives. SIPs allow you follow an investment discipline, which enables you to build a larger corpus for your grandchildren when they are older.
- Easy on pocket
As a retiree, you may find it difficult to make a huge lump sum investment that will provide higher returns to your grandchildren. However, a systematic plan allows you to invest as less as INR 500, which makes it easy on your pocket.
- Convenient
The entire procedure to start and invest in a SIP is very quick, simple, and paperless. Furthermore, you may invest monthly, weekly, quarterly, or annually as per your convenience and comfort. Moreover, systematic plans may be started or discontinued whenever you desire. Lastly, you may increase or decrease the investment amount based on your financial situation.
How to invest in mutual funds for grandchildren
As mentioned, mutual funds deliver exceptional returns when held for a longer period. During the last ten years, mutual funds have delivered 15% returns while gold has given only 8% per annum during the same period.
You may invest in mutual funds in one of two ways. First, you may invest in your name and make your grandchild the beneficiary in your will. Alternatively, you may invest directly in the name of your grandchildren because most asset management companies (AMCs) accept third-party checks. However, the parents will have to sign the form. Additionally, you need to have the child, as the first and sole holder, and the child must hold a bank account. Certain AMCs offer children-specific mutual funds and you may evaluate and analyze these to make an informed decision.
Why are SIPs valuable gifts for grandchildren?
- The majority of the corpus is invested in equities and the balance is divided between money market and debt products. Therefore, the money remains invested for a longer period allowing it to grow to a substantial amount at the time of maturity.
- Most of the systematic plans for children come with a lock-in period until the holder does not reach maturity age. Therefore, grandparents are assured that the children’s parents would not be able to withdraw the money before they become adults.
Tax implications
All income is clubbed with the parent earning a higher income and is taxable as per his tax slab. However, the dividends and long-term capital gains are exempted from tax when the investment is held for a period of 12 months. If you exit before this period, the returns are short-term capital gains and clubbed in the parent’s income.Short-term capital gains are taxable as per their peak applicable tax rate.
However, like all investments, mutual funds are risky and you must evaluate and analyze different options to make an informed decision. Angel Wealth offers this with ARQ, a proprietary investment engine and a key highlight of the Angel Wealth mobile application.
ARQ uses quants and algorithms to analyze over a billion data points and provides customized recommendations based on your requirements. Download the Angel Wealth mobile app today and invest happily for your grandchildren.