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How teenagers can begin investing in Mutual Funds?

14 Jun 2022 0 COMMENT

Introduction

One of the tenets of investments is to start as early as possible. When you begin your investment journey early, you will have a head start over others on your path to wealth creation.

As a parent, if you notice that your child is interested in money and money management, then inculcating a habit of investing money can be a great life skill for your child. To begin with, you should teach them the basics of banking and savings. Once they master that, you can graduate to teaching them about other investment instruments.

Mutual funds are an excellent investment tool to introduce to teenagers. It isn’t as complicated as investing in stocks. At the same time, it can be a great tool to help with wealth creation. For instance, if your 18-year-old begins investing Rs. 1,000 in a mutual fund every month, with an approximate return of 12% per annum, he can accumulate Rs. 24,36,736 by the time he is 45 years old. On the other hand, if he starts investing the same amount with the same return expectations at age 25, he will only be able to accumulate a corpus of Rs. 9,99,148.

Do you see the world of difference that early investing can have on wealth creation? The power of compounding works wonders to multiply returns and generate a sizeable corpus.

How you can encourage your teenage kids to invest in mutual funds

1. Teach them the importance of investing 

The first step to encourage an investment habit in teenagers is to teach them the importance and tenets of investing. Explain mutual funds, the power of compounding and how early investments can contribute to wealth creation. Sign them up for investment classes if you don’t have time to teach them yourself.

2. Show them how to pick the right mutual fund 

Initially, it would help if you hand-hold your children through their investment journey. Elaborate on how they can pick the right mutual fund depending on one’s risk appetite and investment objective. Show them how they can set a goal and invest accordingly to reach that goal. Don’t forget to teach them about looking into a fund manager’s performance, the diversification of the mutual fund and how to start a Systematic Investment Plan (SIP). This way, if they receive any extra money in the form of gifts or a prize, they will be motivated to invest it in mutual funds rather than spend it on something frivolous.

3. Open a minor’s mutual funds account 

While anyone can invest in mutual funds, minors under 18 years need parental supervision to invest. Teenagers can invest in mutual funds through a representation from their parent/guardian. These accounts are opened in the name of the minor and joint holding is not allowed. Once they turn 18, you can convert it into a major account so they can operate it without your help. Please note that until the child is a minor, the child's portfolio's income and gain will be clubbed with the parent's income and the parent needs to pay applicable taxes.

4. Give them an investment allowance 

Since teens may not have money of their own, giving them a monthly investment allowance to begin their mutual fund investment journey can encourage investment. You could start with a small amount like Rs. 500 a month and then bump it up depending on how well they proceed with their investment journey.

Conclusion 

There is never a right age to begin investing in mutual funds. The sooner you start; the more money you can accumulate. Encouraging and teaching your teenage children to invest in mutual funds can set them up for life and help with wealth creation early.

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