Sajjad Bazaz
Meanwhile, I have been consistently advocating that parents should arm their children with the techniques to deal with the financial matters. Times have changed, exposure has increased and today in this growing age of consumerism our children are primary targets for their money power earlier than ever before. This means parents have an added responsibility to help their children to be more responsible with the money and teach them investment for wealth creation. The financial lessons should begin start by inculcating saving habit in your children and guide them to various financial schemes.
In today’s scenario, till the age of 20, a child only spends money and after that, he starts earning. But he lacks the skill of the most important aspect of managing money. Today’s children know about ATM, credit cards and debit cards. They leave their home for studies much earlier than their parents ever used. They even start earning much earlier through internships and summer jobs, but they still remain ignorant about the money management. There is always the temptation to go in for better living today over saving for better tomorrow.
What is the scope of investment for children in share market?
I have observed that many young minds still in schools and colleges are showing temptation to enter in to the stock market, as they have been hearing success stories through various sources about investors creating wealth.
Since equity investing is a scientific process and not about rolling dice, it calls for our young minds to have a better understanding of market functioning. There is a notion that entering into a stock market needs lot of money. This is not a fact. There is an option available in the market where you can make a humble beginning. Similar to recurring deposit scheme of banks, an investor can use systematic investment plan option to invest in equities (shares) and can stay invested over a long term to earn decent profits. This is the option, which parents can also use for their children to mark their entry into the stock market.
What is this systematic investment plan (SIP)?
Basically, systematic investment plan (SIP) is a facility offered by mutual fund companies paving way for an investor to access equities market. A person with regular inflow of income, particularly salaried class, can use this route to access the share market. The best part is that when you enroll for a SIP, you essentially entrust your money to a professional whose full-time job is to manage people’s money, for which he gets paid. This ensures that your money is looked after all the time. You neither need to track the markets on a daily basis, nor do you need to take calls on individual stocks as you have opted for a professional fund manager.
Some major benefits of Investing through SIP include rupee cost averaging, regularity of investments, power of compounding etc.
Rupee cost averaging simply does that by automatically buying more when the price is low and purchasing less when the price is high.
It instills discipline in the investor and helps him stay focused, investing regularly for the long term.
As far as power of compounding is concerned, it is for investments for longer periods of time – small items compounded regularly over longer periods yield big difference in the final results.
So, you as a parent can use SIP as a vehicle for your children to grow financially. Developing early and positive financial skills in saving and investing can add grace to the prosperity of your children. However, I would suggest, always consult a financial consultant before entering into the share market.
Is profit guaranteed in SIP?
There are certain things which you as an investor need to keep in mind. Investment in SIP would yield positive results in a bull or rising market as every new purchase is ultimately valued at an even higher price. As experts put it, market in median range, corrects downwards and then moves up suits SIP to perform well. This is because the investor will get the assistance of the intermediate correction to “lower his average cost”.
But do remember, there are also certain conditions like falling market, market in median range, moves upwards and then moves down, under which the SIP would not yield positive results.