How do you select an investment fund for your child?

As a parent of one or more young children, you have several options to save on their behalf. One of these options is investing. But how can you choose a suitable investment fund for your child? We're here to tell you all about the do’s and don'ts of this savings option.

What exactly is an investment fund?

If you are looking at investing in your child’s future, it will not be long before you come across the term "investment fund". But what exactly does this mean? An investment fund is a fund that collects money from several investors to invest jointly in a wide range of assets such as shares, bonds, real estate or other financial instruments. It is a kind of a way for investors to band together. As you are investing jointly with others – which is possible with a small amount of money – all your money will not depend on the success of any single company or sector. As a result, the risk is lower than with individual shares. A team of experts manages and optimises this "shared pot", so you don't have to worry about your investment. In short, it is an interesting option if you want to build up a nice lump sum for your child’s future – without needing to become an investment expert yourself.

Why invest for your child at all?

Investing for your child(ren) comes with a number of different benefits. Apart from the fact that you have introduced them to the idea of saving and investing at an early age, the following factors may play a role: • Increased yields Children have the advantage of time, giving the investments you make for them the opportunity to grow. This means you can achieve a higher yield on your investments than with a traditional savings account. • Financial security If you start investing right now, you will build up a good financial buffer for your child. This will help them with future financial milestones, such as paying for their studies or buying their first home. • Get started with a small amount Through an investment fund, you can invest in an extensive portfolio with just a small amount. This offers potentially higher growth than a savings account. • Flexibility You can pay into a number of investment funds whenever it best suits you. This makes it easier to invest in your child’s future without overstretching your current financial situation. • Diversifying risk Do you have a classic savings account only? If so, your money will lose value over the long term. Investing also involves risks, such as a drop in value.

You should also be aware that there are some general points to look out for and risks associated with this form of saving. Find out more about this here.

Investments yield much more than a traditional savings account over the long term. You will also earn much more than if it was stashed away in a piggy bank, too.

How do I get started?

As a general rule, the earlier you start investing, the greater the compound interest effect, which is what ensures that your wealth grows faster in the long term. first, decide how much you want to invest and how often, and what level of risk you can accept (we will go into this in more detail below). You can start investing with small amounts, such as EUR 10 per month or even EUR 25 per year, often even without any entry or exit fees. Another choice you need to make: do you want to set up the investment fund in your child’s name or in your name with your child as the beneficiary? If you choose the first option, the money belong to your child and he or she will take control of the fund at the age of 18. With the second option, the funds belong to you, so you always remain in control. It is useful to know that inheritance tax needs to be paid if you die before your child is 18 and the investment fund is in your child's name. This is because the money is already in your child’s name. Do you prefer to have a fund in your name with your child as the beneficiary? If so, the money goes to the child on the agreed date or they become the owner of the fund, but inheritance tax is due on it. This is because you, as the parent, are the legal owner of the amount on the account.

What are your options?

Before choosing an investment fund, it is best to first stop and consider the level of risk you are willing to take with the capital earmarked for your children. These levels are, in turn, linked to differing potential returns. The higher the risk, the higher the potential return, but also the higher the risk of losing money. We offer the following 4 options in our KEYPLAN for Kids: • Cautious This gives you the best chance of preserving your capital. The risk that the value of the assets in which the fund invests will fluctuate is the lowest in this case. However, this choice will be the likely be the least profitable at the end of the day. • Balanced As the name suggests, this is a good balance between a cautious and adventurous investment. This KEYPLAN is not the most profitable, but the risks remain limited. • Adventurous This plan can give you the highest return, but it also involves the greatest investment risk. This is where the value will likely fluctuate the most. Fluctuations can be both upwards and downwards. • À la carte With this option, you can put together your own KEYPLAN. There are a total of 40 carefully selected funds to get started with. Each option comes with its own risk. Whenever you invest, there is always a risk that you may incur a loss. Click here for a clearer picture.

Choosing an investment fund for your child? Calculate your return now!

Just do it used to be a clever slogan. We would have to agree with it! Start investing for your child today. You know by now: the sooner you start, the bigger the pay-off. Want to find out more about how it works? Do a quick calculation with our user-friendly simulator. Your little darlings will thank you for it on their 18th birthday. Calculate now