“I wish to bring up my children in a better way than I was brought up.” How many times do you find yourself saying this? It’s a cliché beloved by most – if not all – parents.
In all likelihood, it alludes to the uncertainty that clouded many parents’ future in their childhood.
As Kathy Muthoni, a mother of two, attests: “You were lucky to be born with a silver spoon in your mouth and even luckier to have your future secured.”
Back in the day, investing in a child’s future was alien to most parents. But things have changed, and today, your child’s future should not be a matter of luck or silver spoons.
According to Joseph Njau, a financial consultant, “there’s plenty that you can do to see that your child graduates into a stable future”.
And you don’t have to earn a huge salary to invest for your child.
“Many financial institutions have come up with numerous ways through which parents can invest for their kids,” Joseph says.
The most common among these are the children’s savings accounts and the fixed deposit accounts. “Ask a parent where she invests for her child and she will very likely show you a junior bank account card,” observes Joseph.
While these may come with their full basket of fruits, there are more highly rewarding channels that a parent can log into for her child. These are long-term and do well for children’s education, health and income plan investments.
According to Brian Wesonga, a manager at Old Mutual Kenya, one of the more rewarding channels is the mutual fund or unit trust – also called Collective Investment Vehicle (CIV).
“Unit trusts are best for parents who want to invest in their children’s long-term plans. They pool funds from various investors and come with a great advantage in taxation, since mutual funds are only taxed after maturing.”
Nonetheless, just like any other investment, unit trusts call for careful planning.
“A good investment is a result of careful planning. For instance, there are designated mutual funds to choose from, and you will need to identify the bouquet that comes with a combination of debt and equity investments. In addition, you should also use systematic investment options that also save on entry costs.
“There are investments that will enable you to decide how much you wish to invest for your child and for how long. Then there are those that will only allow you to invest for a minimum of five years,” Brian points out.
Most of the mutual fund companies manage numerous, different funds, and readily allow you to switch between them at little or no cost, Brian says. “It enables you to change your portfolio balance depending on your needs, wants, goals and market conditions.”
Some of these funds include: money market, index and global funds, and the fixed-income. While all these may sound too costly to manage, they actually are not.
“Unit trusts come with a low cost of asset management. The cost is usually divided between larger pools of money, giving you a lower cost alternative for managing your investments.”
If you are planning to invest for your child’s university education, it is wise to go for a package that comes with a minimum number of years you can invest for.
Some investment vehicles may permit you to buy more units on a regular basis with small instalments of Sh5,000 per month. Others will grant you a start off with a particular amount for the initial purchase, say of Sh50,000.
Dedicated children trusts often tend to be less expensive than the general ones. Unlike savings in fixed deposit accounts, units in a mutual fund can be sold or bought whenever the trading market is open. This goes a long way in cushioning you during the ‘dry’ seasons.
To top it off, a single mutual fund can hold securities from thousands of issuers, and consequently minimise the risk of an acute loss resulting from market troubles.