“Today’s child is tomorrow’s future.” It is our duty and responsibility as parents to save and invest for our children. But the biggest worry and confusion in every parent’s mind is how to identify the best child investment plans. There are a lot of child saving and investment plans in India like the mutual funds, ULIPs, Endowment plans. All of these claim to be promising and extraordinary. To clear your confusion, we have come up with simple steps to help you take the right saving decision for your child.
Here are 9 steps to identify and help you choose the best child saving and investment plan in India:
Say no to financial products that claim to be designed for a child’s future-
The Endowments, ULIPs and the mutual funds that claim to be designed for a child’s education and future should be completely rejected. The benefit of premium waiver offered by such plans in case of the demise of the parents is what usually attracts investors. However, this benefit can be simply availed in the simplest of insurance plans. Such tagged plans must be avoided due to complexity in design, liquidity issue, lack of a past track record and the overall uncertainty related to it.
Invest today, do not delay-
Parents are often faced with the question that when is it the right time to invest for a child. The right and appropriate time for child saving and investment is Do not postpone. Whatever may be the age of your child, start saving and investing today in the different child investment plans. This will help you with catering to your child’s future needs and fulfilling all the long-term goals of your child. Do it now and reap the benefits later.
Draft the future goals of your child-
Once you realise and develop the right mindset towards child investment plans, you are on the right track. Decide a specific time frame to achieve goals such as marriage and higher education and plan accordingly. Calculate the approximate funds required to achieve each future goal and calculate the time period for achieving the same. This can be best attained by meeting with parents whose children are pursuing higher education and have faced a similar dilemma. While calculating for the future keep the current expenditure and the rate of inflation in mind. Focus more on your child’s education than any other future goal.
Inflation is a parameter that is of prime value when it comes to identifying the best child investment plans. The finance experts and advisors consider it to be around 6% to 7%. But, practically with such sky-rocketing prices, inflation gives a perceived impact of being around 8% to 10%. While identifying the best child saving and investment plan it is prudent to consider inflation at a higher rate than the typical rate of 5% to 6%.
After chalking out your child’s future goals, after deciding the time frame for the same and considering the inflation rate, it is time to focus on investment. Be wise as you select the class of asset you want to invest in and know the final expected amount. At least maintain a return of around 7% from debts and a return of 10% to 12% from equity. In case, the income generated is more than your expectation, consider it a bonus.
Buy a worthy life insurance Plan –
Life insurance is an important financial instrument with respect to your child’s future. Having reasonable and adequate life insurance is essential. You should conclude at an amount after considering significant aspects such as the entire fee that is needed for the child’s graduation and post-graduation and future household expenses. If you have other financial goals and liabilities, include them while making a calculation and deriving at the final amount. You can avail help from a financial planner and advisor to derive at the right amount.
Choose the best plan-
Now the full knowledge of the time period, inflation rate, costs of the goal at present and future, and the final expected returns is obtained. At this stage, selecting the right child investment plans is important. If you are looking for debt, then PPF is the best option. But, match the tenure of your goal and the maturity date of your PPF account. If not go for the ultra short-term or the short-term funds. If you want equity funds, choose the mutual funds- either large cap, mid cap or small cap.
If you are not interested in debt or equity, then select the best equity-oriented balanced funds. The ideal ratio of equity to debt is 65:35 for investment in these funds. Be careful consider the terms and conditions before making any investment.
Allocate assets wisely-
Whenever you think of making an investment, its best to put your eggs in different baskets. In other words, it’s wise to have a diversified portfolio. Identify your risk taking capacity and your financial goals before making an asset allocation between debt and equity. Say if your goal is a short-term goal, then you can opt for different debt products like FD, RD or the debt funds and avoid investing in equity If you have a waiting period of 5 to 10 years then its best to invest in debt and equity in a ratio of 40:60. If you have a long-term goal to be achieved, then invest in debt and equity in the ratio of 30:70. As your goal is approaching, increase your debt investments and decrease your equity investments.
Repeat the analysis-
Once you have invested in the most sought-after child investment plans, relax for 2 to 3 years. Then begin the reviewing process. Relook at your asset allocation. This will give you a clear picture of the ROI of your investments during the low market levels. Review and try to rebalance the savings based on your goals and the existing and expected market situation. Just investing and waiting for a good return is not sufficient. It demands re-analysing and reinvesting in the best child investment plans.
Follow the steps mentioned above to identify and invest in the best child investment plans. Secure your child’s future and give the best to your child.