On This Children’s Day Gift A Pension To Your Child

The entire world applauds the Indian family system for the deep-rooted values, ethos, and culture. The foundation of this system is based on mutual support, sharing, and caring. The head of the family gives immense importance to the well-being of family members. At times, this becomes the only objective for him to live.

As a parent, we want our children the best of things in life. We want to provide them a comfortable lifestyle, the best education and see to it that they are well settled in life. We always dream that children should do better than us in every walk of life, be it education, career, or wealth creation. We want to see them happy in every moment.

Few of us in our generation are fortunate to receive a government pension. Seeing few bucks getting credited to your bank account at the end of every month gives a huge sense of financial security and peace of mind. When you are getting older, receiving a regular pension is nothing less than a gift of God. It gives you a lot of independence. However, we must be cognizant of the fact that our children will not be so lucky. They will not have this luxury of receiving a pension. And hence, as a parent, it is our moral responsibility to ensure how we can make this happen.

Here is a simple solution. You can easily ensure a monthly pension for your child by investing in mutual funds through a Systematic Investment Plan (SIP). If you invest regularly in mutual funds, over the years, you will create enough wealth. Through this accumulated wealth, you can withdraw a predefined amount monthly using the Systematic Withdrawal Plan (SWP). This will be the pension for your child.

Please remember that compounding is your best friend. Creating a pensionable wealth requires only two things, discipline and time. The earlier you start, the lesser will be the monthly instalment required and higher will be the accumulated wealth.

Let me share four different scenarios of how this can be achieved. For the calculation, I have assumed following:-

(a) Retirement age :- 60

(b) Growth rate :- 12 %

(c) Monthly pension expected today :- Rs 50 K

(d) Inflation :- 6 %

Scenario	​Child age at start of SIP	​Expected pension per month (Rs)	Expected wealth accumulated (Rs)	SIP amount (Rs)
1	1	17L	​34.7 Cr	3000
2	10	10L	19.7 Cr	5000
3	18	6L	12 Cr	8000
4	25	​4L	7.8 Cr	12000

Even if your child is of twenty-five years, with just Rs. 12 K per month, you can accumulate a wealth of Rs. 7.8 Cr; which will gift him a pension of Rs.4 L per month. This is the power of compounding. So before it’s too late, on this children’s day, let us celebrate family ethos, values, and culture by gifting your child a pension.

The wise old man Charlie Munger said,” The first rule of compounding is to never interrupt it unnecessarily.” So, what are you waiting for? Just start, and one day you will definitely reach your destination !!!