When to Start Investing in Child Investment Plans

As a parent, you know how expensive educating your child has become and the expense goes up day by day. You can’t even estimate at times how much you are going to pay for higher education when fees for primary education are rising insanely. That’s when you should consider child education investment plan. You want your child to achieve heights and money should never become an obstacle. Moreover, child investment plans are not meant to just free you from the stress of high fees, it applies to all the dreams a child sees as they grow up and you will never fail to meet their financial needs at such times.

Investment Strategy for Children’s Investment Plan

A child education plan needs to be strategized, or else it won’t be worth it for short or long term. You need to invest with some knowledge as you don’t want any returns and a waste of more money. Here are some key points you need to consider for your investment strategy:

1. The costs
You can initiate by calculating the costs of meeting your child’s future needs. Like what your child’s desired education will be, and it would be better to discuss it with your child if they have grown up and have the ability to think for themselves. Regardless of your child’s age, think of the costs of graduation and post-graduation, which are far more than what you spend in the primary. If abroad studies are one of your future plans, think wisely.

2. The estimated time frame
It’s important to calculate how much time you have or for how long you are willing to invest so you can reach your investment goals. You can think of the length of time based on your child’s current age and how long it will take for them to reach graduation or a higher level. Or you can think of the amount of time you need to collect the costs you have estimated.

3. Your regular needs
Don’t ignore your current liabilities for a secure future. Follow a child education investment plan that meets the present needs to, and invest what you can afford to. Assessing your requirements of now will give you an idea of the amount you can put into an investment every month.

4. Be ready for sudden liabilities
Apart from the aspects you already have in your mind, you need to be prepared for any unexpected expenditure or situation. You can not predict the exact needs that you will encounter in the future, and there could be any sudden requirement that you have to fulfill at the moment. It’s important to be ready for such things as there are much more things other than education fees, so you don’t get disappointed with the strategy later.

Importance of Inflation Quotient

A child education investment plan needs to be made taking in account the inflation rate. With increasing inflation rates, the price of education changes and the value of what you have invested could decrease. Your purchasing power with the same amount will gradually decrease and sometimes education can be far more expensive than what the inflation rate says. So it is vital that your aim through the investment includes consideration of changes in rates and early planning could help deal with this.

Different Investment Options for your child

With all the points in mind, you need to know what child education investment option will fit your needs. It’s important to have knowledge about the one you pick before you invest. For a secure future, work with multiple options and prefer low risk investments.

1. Bank deposits/ Fixed Deposits
Almost every parent in India uses Fixed deposits to save for the future. One good thing about FDs is that it doesn’t get affected by market fluctuations, and you can expect good returns when you keep deposits for long terms. While in FD where you deposit a fixed amount at once for fixed interest and duration, another option is RD where you can deposit an amount every month for a fixed duration and interest.

2. Public Provident Fund (PPF)
You should consider PPF for a long-term child education investment plan. PPF is an investment scheme offered by the government that comes with a maturity period of 15 years. There is a limit of Rs 1.5 Lakh per year to the amount you can put. However, the main benefit is that you are returned an amount without taxes applied.

3. Mutual Funds
Another opportunity to secure your child’s future is mutual funds. They are risky but good for the long term and you can expect high returns. Doing a little research, you can find an investment way that works according to your risk tolerance. A Systematic Investment Plan (SIP) comes under mutual funds, were an amount from your salary, deducted monthly, gets invested conveniently or say avoids risks.

4. Digital Gold
Investing in gold is no more merely physical. You can invest in this never dying asset at the comfort of your home and avoid the hassle of storage plus security.

5. Life insurance
An untimely death can disturb the financial status of your home and the cycle of a child education investment plan if you are the sole earner in the house. Get yourself insured for such cases so your family can survive even in your absence. Several life insurance policies are running in today’s times and the basic thing it refers to is you invest a regular premium and compound interests are accrued on that.

Read More: Importance of Child Insurance Plan

6. Unit Linked Insurance Plans (ULIP)
ULIP can work perfectly for a child education investment plan. How it works is you pay a regular premium as you do with any insurance policy, and then a part of that amount is invested in the market which increases the chances of better returns.
Final Thoughts
So, you can start investing from the time your child is born, and anytime after that if you have a sufficient amount of time to think of a child education investment plan. It’s vital to start as early as possible so you actually gather a good amount when the time comes. If yours is a grown-up and about to pursue higher education within years, it’s good to include their thoughts in the idea too. After all, you are doing all this for them only. It will help you work better with the investment options knowing what your child is seeking for their future.

CA Mukesh Gupta
CA 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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