Financial planning for Children
Hello friends, Saving and planning investments for a child’s future is an important part of every parent’s life. Every parent wants to protect their child’s future and provide maximum facilities. Saving for higher education & marriage of the child as soon as possible due to rising educational expenses and inflation in India has become important.If you look at the current educational situation, it is not only for paying college fees, but also for tuition & coaching fees, study materials for the year, stationary, work on various projects, extra curricular activity fees, software subscriptions etc. For that, it is better to prepare from now on.
Planning and investing for your child’s future can vary from parent to parent, as it often depends on the child’s age. If a child is 5 years old, parents will have more time to deposit money. But if the child is close to his higher education, i.e.15-16 years old, then he does not have much time.
Good options for a child’s future & investment
Term insurance is the most basic thing for personal finance and to protect future of child’s life from uncertainities. Make sure you buy term insurance policy before starting any investment. It is always recommended to take pure term insurance. All financial planning can go wrong in the event of any mishap .So, the insurance plan can protect against this crisis. But that doesn’t mean buying a ULIP plan or any child insurance plan. Instead one can combine term insurance and SIP, which will offer higher returns and security than other expensive plans.Most of people buy child specific plan in only because of peer pressure. But is advised to buy normal term insurance plan to secure future of child.
Mutual Fund SIP
This is a good option for long term savings for the purpose of your child’s education. Investing in mutual funds through SIPs helps in reaching the required corpus. ‘Time’ is more important than the amount invested. This is because the effect of compounding depends on the duration of the investment. The sooner you start, the bigger the corpus will be. An SIP of Rs 5,000 per month in a good equity fund can give you around Rs 25 lakh in 15 years (assuming 12% annual return). Also, if you increase the amount of SIP every year, you can benefit from more money at the end of the term. If the investment period is 15+ years, one can easily consider an index fund.
There are some famous mutual fund plans for children
- UTI CCF Investment Plan
- HDFC Children’s Gift Fund
- LIC MF Childrens Fund
- SBI Magnum Childrens Benefit Fund
This is secured option available in post office for long term purposes. You can start investing in a recurring deposit just like an SIP. The return is not as high as that of a mutual fund SIP but it is a safe investment and the return is fixed. For more flexibility, one can also invest in Flexi-RD. RD is available in all leading banks and post office also. Intrest rate for RD is currently 5-6% as per time duration and bank.
Public Provident Fund (PPF)
This is most secured and recommended option. It has the triple benefits of compounding returns, tax relief and a good amount at the end of the term. PPF is a safe option as it guarantees a return. Current intrest rate for PPF is 7.1%. It has lock in period of 15 years. PPF renewal is allowed for 5 years after maturity.
Sukanya Samridhi Yojana
This is a great initiative taken by Prime Minister Shri Modi for a better and safer future for girls in India. Under this scheme any legal parent can open an account for their daughter. The scheme is gaining popularity due to its high interest rates and it offers EEE tax benefits like PPF (EEE means tax rebate on investment (80C), rebate on interest received and rebate on maturity amount).Current intrest rate for SSY is 7.6%. This scheme is only for girls.
Gold ETF or e-gold is also a great investment option for your child’s future. It is risk free as it is not in the form of physical gold and gives good yields. But understand that investing in gold is more for hedging purposes. Don’t just invest all your money in gold. You need not to store and secure physical gold in home. It si very flexible option.
Fixed Deposit is the safest investment tool. It does not offer tax benefits like PPF but it does provide security and fixed income. Search and compare different FDs before investing. FD Laddering can also be done to take advantage of a little liquidity and long term.
Choose from the various options suggested above or choose a combination of them, which is right for your own needs, risk potential and duration. Invest early so that your child can reap the benefits in the future.
The last few important points when investing for children-
- Don’t make any investments in your child’s name. Invest in your name for the goal of the child’s future.
- Avoid investing in any ‘child specific’ mutual fund, Ulips policy.
- Teach your child about money and the importance of saving to help him understand the value of money.
- I hope this information helps you make the right decision.
Financial planning for Children is very important nowdays .I hope this article will help you in Financial planning for Children.
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Author of this article is “Pranav Divekar”.