Looking to Plan your Child's Future – Read On

The birth of a child brings in lot of responsibilities on you as a parent. What are the financial planning steps, you should undertake to secure your child’s future? One thing for sure, When it comes to financial planning for a child’s education, the most affordable way is to start saving early. Start investing for your kid immediately after she or he is born with a focus of 18 years. Long term investments on right mix of investment products are always a good idea to meet all your kids future financial goals.

1. Mutual Funds – Start investing in one or two best large cap mutual funds immediately after your first child born. Follow a disciplined investment approach by utilizing the Systematic Investment Plan method to invest minimum amounts with both funds in each months. Large cap generally have a portfolio of most prominent companies in India and would be able protect your kids money from huge volatilities in the stock markets. Naturally the prominent companies are able to produce handsome returns in the long run.

2. PPF Account – PPF account serves as excellent fully risk insulated investment plan. Further, investment in PPF account also has tax benefits on investment, on interest earned and also on the redemption.

3. Direct investments – A person who well versed with equity investments can buy shares on behalf of kids. Identification of the right and best company and price to buy their stocks has importance in it.

4. Re-examine your insurance needs – The amount of life insurance that you buy depends totally on your dependents. The idea of life insurance is to make sure that your dependents enjoy the same quality of life even if you are not around. With the addition of a child in your family, you have a person who is totally dependent on you, and would remain dependent on you for at least 15 to 18 years. This definitely calls for an increase in your life insurance needs. So, do increase your insurance cover. And increase your life insurance cover adequately – the amount should be such that it can take care of your child in case of your untimely death. For maximum cover at the lowest price, go for term insurance.

5. ULIP Child’s Plan is Strictly optional – Life insurance companies offer various plans that are supposedly tailored for parents of young children. These are often called “child plans” in order to attract parents. Please do not fall for these plans – they essentially offer the same benefits as any other insurance plan, and usually have higher expenses / premiums. The same results can be obtained at a lower cost by buying life insurance and investment products separately. So, instead of the children’s plans, opt for a simple term insurance plan as explained above.

6. Opt for great old Indian investment plan for gold – Even if you are not too fond of gold, you would invariably need gold for your child’s marriage – irrespective of whether you have a son or a daughter. So just like starting to save early for the goals, start buying gold early on. This would help you buy it at a low average cost. Please do not buy jewellery – it is the worst form of investing in gold. Buy either gold coins, or better still, buy units of gold.

7. Age Old Fixed Deposits still holds good – The investment in the fixed deposits serves good tools for long term investment plan. Individuals should opt for long term tax saver fixed deposit plans.

The bottom line is to create new goals and start saving towards them – You need to think about the future needs of the child. Her college and post-graduate education, and her marriage are some of the important things that would need significant financial resources. Apart from these, you might want to have something special for your child – like sending her abroad for her higher education.

And it is advisable to plan and save for it well in advance instead of scrambling for funds when the need arises. The advantage of starting to save early is that you would need to save very small amounts even if you want to end up with a large amount. This is due to the power of compounding – over time, your small investments would grow into a large sum.

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