Investment planning for your child- the sooner the better!

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Investment planning for your child- the sooner the better!

Introduction

Raising the child right and gifting him/her secured future, is a dream for many. Every parent wants, that their child should be able to study in the best school and pursue higher studies in the college he/she wants. The day child is born, the least one can do is, start the investment planning for child, so that you don’t have to look up for loan at the time of any goal requirement – be it education, marriage, or anything else. However, while we discuss and google things a lot, not many of us actually sit with paper and pen and plan, let alone having a financial advisor be at your side.

Why having a child investment plan is important?

So that you’ll know where you are financially, and to what extent you can fund your child’s education, if not all! Simple. On an average, a parent spends around Rs. 20 lakh in just schooling of a single child. This includes stationary, books, educational trips, fees etc. This number just doubles or triples itself, if we talk about higher education – college degree, post-graduation, etc. If your child’s dream is big, insufficiency of the funds, should not prove any hindrance.

 

How to devise a child investment plan?

1. While preparing a plan for your child, arrive at a cost- as how much it will approximately cost for your kid’s higher education.
2. In order to arrive at this cost, find out how much is the cost as of now, of an undergraduate or a post graduate course.
3. Post this, do your risk profiling, how much you can afford to invest for your child’s dream. This in turn, would depend upon number of dependents you have, your salary, your age, preference order, (for example, retirement is generally a priority), other liabilities if any, etc.
4. Start early
5. Look out for the suitable options, depending upon the timeline. High return products generally have high risk, and vice versa.
6. Instead of making a plan and doing all by yourself, take advise from someone who holds a decent experience in financial planning and is well qualified.

Products for Child Investment Plan

There is no one set of products. You can invest in all the permutations and combinations. Following are the products that people generally invest in:
1. Mutual Funds: Mutual Funds are investment vehicles which collect money from all the investors and invest in bonds, equities and/or money market instruments. These investors share a common objective, as in the kind of instruments the investment has to be made, or the combination of two or more kinds, or on the basis of risk profile.
2. Fixed Deposits: it offers higher interest rate than regular savings account until prefixed maturity date.
3. National Saving Certificate: Government backed, fixed income investment option, best suited for those individuals who have conservative risk profile.
4. Recurring Deposits: provides flexibility to its customers, to invest an amount of their choice each month for a fixed tenure. In return, the bank offers interest rates to the investors.
5. Tax Free Bonds: Such bonds are issued by Public Sector undertakings, like NTPC, NHAI, etc, and the interest earned by investors is tax free. These are fixed income instruments, suitable for conservative/ risk averse investors. They offer fixed interest rate and is for long tenure, 10 years or more.
6. Equity Shares
7. Portfolio Management Services:  offers customized and specialized service wherein the investment portfolio is tailor made that suits the objective of investor and it is managed by professional money managers.
8. Structured Product: These are the financial products which offer investors a range of different investor terms and risk profiles. They are designed in a way to protect a part or all of the invested amount, providing growth or periodic income in the investment tenure.

Conclusion

Be it any goal, planning becomes the essential activity to deploy. In the priority list, post retirement, child education is the next important goal to fulfil for most of us. Hence, planning becomes more important. Also, considering rising education cost and increased competition, it becomes absolutely necessary to plan at the earliest.

Mr. Mukesh Gupta
Mr. Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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