Investing for your Child’s Future

Saving and planning investments for your child is one of the foremost item in every parent’s life. Kids are one of the priorities for every parent and to safeguard their future. With increase in education costs and inflation, it’s becoming eminent to start savings for kid’s higher education / marriage at the earliest. If we take into consideration the current educational situation then it is not only accumulating funds for college but also comes with additional costs like Tuition/coaching fees, year round study supplies, project works etc. Education is going to be very costly affair and it is better to start preparing now.

Planning & investing for your child’s future will vary as it’s mostly depends on the child’s age. If a child is 4-5 years old then parents will have more time in their hand to accumulate money but if child is approaching higher studies i.e. 12-14 years old then they don’t luxury of time. With this ‘time’ variation, options of investments will also change.

Following are some of the good options available for investing for child:

Mutual Fund SIP: 

This is an excellent option to accumulate money over the long term for your child’s education/marriage purpose. Investing in mutual fund through SIP way can help you to reach the required corpus. Only important factor is ‘Time’ rather than amount of investment because effect of compounding comes from investing time horizon. Sooner you start bigger will be the corpus.  A simple SIP of INR 5000. each month with a good equity fund can give you around INR 25 lacs in 15 years, assuming 12% annualized returns.  Increasing amount of SIP every year could also benefit you with more sum at the end of tenure.

Recurring Deposit: 

This is another option available for long term purpose. Same like SIP you can start with small amount. The returns are not high as compared to mutual fund SIP but it’s a safe investment and returns are fixed.

Public Provident Fund (PPF): 

This is one of my favorite option. It comes with triple benefits of compounding, tax exempt and decent sum at end of tenure. PPF is also safe option as returns are guaranteed. It also gives flexibility in investment.

Sukanya Samriddhi Scheme:

This is one of the good initiative taken by our Honorable Prime Minister Shri. Modiji for better and secure future of girl children in India. Under this scheme, any legal guardian or parents can open the account at the time of birth of child till she attains age of ten years. This scheme gaining popularity as it offers high interest rate and it’s a EEE(EEE means tax exemption on investment (80 c), exemption on interest received and exemption on maturity amount ) product like PPF.

Gold ETFs: 

Gold ETF’s or e-gold is also a good option of investing for child’s future. It is risk free as it’s not in physical form and gives good returns. Gold investment is more for hedging purpose therefore do not invest all your money only in gold.

Term Insurance:  

Taking a pure term insurance is always recommended. In case of an any unfortunate event all this planning could get wrong and therefore insurance plan can safeguard this crisis.  But this does not mean to buy ULIP plans or any child insurance plan. Combination of term insurance and SIP, will give more returns and security than other expensive plans.

Fixed Deposits: 

Fixed deposit is one of the safest investment tool. Though it does not offer tax benefits like PPF but it offers safety and fixed returns. Do search and compare between different FDs before investing. (https://fund-matters.com/2016/02/07/fixed-deposit-schemes-how-to-get-most-out-of-it )

 Choose from the above suggested options which is/are best suitable to your own needs, risk capacity and time frame. Invest early so that your child can get good benefits in future. Do teach your child about money and importance of savings which will help him realize the value of money. (https://fund-matters.com/2014/08/10/teach-your-kid-the-value-of-money )   

I hope this information will help you make the right decision. Happy Investing!

Sources:

• Economic Times
• Financial Express
• http://www.sukanyasamriddhiaccountyojana.in