Planning your child’s future- a guide to get it right

What do you want to be when you grow up? I want to be a pilot, no I want to be that pop star, or maybe an astronaut who works at NASA or I want to be a scientist and discover something that will change the world. Children and their aspirations. They keep changing and evolving and what a joy it is to see them grow, chuckle at their innocent dreams but as parents it’s also important to ask ourselves “are we prepared financially in all respects to fulfil their dreams?” When I was young and was asked this question I once said a doctor and then I was gfascinated by Madhuri Dixit and wanted to dance like her.Well, I ended up as none of these but I think a Chartered Accountant is pretty good and what amazes me is I could complete my professional course at a cost of a meagre Rs50k(I see some wide eyeballs, 50,000 is not a meagre sum i know, but looking at kindergarten fees these days, I would say its miniscule in comparison). The mounting fees- right from school fees to tuition classes which claim to guarantee you a seat in that coveted college, the cost of professional courses in India and overseas, all of these coupled with inflation make it all the more imperative to devise a sound and systematic plan for your child’s financial needs. Some of the important considerations one has to bear in mind are: 1) Set a goal in terms of how much money you would require to meet your child’s financial needs. Agree that this is an estimate and there would be things you cannot foresee but having some kind of a realistic goal supported by adequate data should work well. For instance if your child is 3 years old, think of the sum that would be required to complete schooling and a professional course for example Engineering coupled with a Management degree. Take into account the rate of inflation as well as that plays an important role. You would then know what sum you need say 15 years down the line when she is ready for Engineering.You can start investing keeping that sum in mind. 2)When is the right time to start? As early as possible. This gives you a good time horizon to invest and will not put undue pressure on you when you are in need of funds. If you are currently bearing the brunt of a housing loan which eats into a big chunk of your salary, you could invest smaller sums now and gradually increase it, but its always good to start early. 3)Don’t put all your eggs in the same basket. This aptly applies to financial planning as well in fact its vital given the volatility in the economy and unpredictable behaviour of markets. Your investment portfolio should be a good mix of safe instruments and some amount of risk as well (higher risk gives higher return, no doubt there is a flip side as well, its all boils down to evaluating the two). 4)Gone are the days of the good old FD and savings bank, one can now invest in many other relatively safe but better return paying assets. Debt funds are one such class which are lesser risky and give good returns 5) Equity is one of most lucrative investments but a word of caution here- you must be able to track and exit them at the correct time. Rather than speculating it would be safe to invest in blue chip stocks(stocks of companies which have been performing well, have sound financials and are part of the Sensex/Nifty Blue Chip index), there is a remote possibility that on a long term you would loose out unless something untoward happens. Hence the need to track these as well, not daily but have a fair idea of how they are performing. If skill or time is a constraint, then etfs are the best bet as you have fund managers tracking them for you. Equity etf’s have been outperforming markets in recent past. You also don’t need to track them as actively as you need to track your investment in single stocks. SIP(Systematic Investment Plan) is a ideal option as a fixed sum (may be as small as Rs1,000 per month ) is invested into the fund, that way your investments are spread out over a wider time horizon and there is no big outflow which will cast a hole in your pocket. 6)As much as we Indians love gold, and we have been accumulating it over the years for our daughter’s D Day, I think its high time to change this age old practice. Gold ETF’s are a better option any day. The underlying asset is gold here so its nothing but gold but in the form of a fund. You dont have to worry about it being stolen, it lies in your demat account instead of locker and you can convert it into cash anytime by redeeming it and use the money for any purpose. In case you feel gold is not performing well, you can stop investing and switch to some other lucrative investment. A much more convenient and hassle free option. 7) Its important not to forget insurance, to safeguard the future of your family in case of any unfortunate event but don’t mix up up the 2(insurance and investing). There are many schemes which give you a life cover plus have an investment feature, the goal is to keep in mind that the purpose of insurance is solely to secure your family in case of untimely death and the purpose of investing for your child’s future is totally different. 8)Track your investments at regular intervals and switch them in case they are performing badly consistently. Keep abreast of any new instruments, funds which are more profitable and there is no harm in parking a small sum of money in them and tracking them to get good returns. Also, as you are closer to the time when you may need to use these funds, start switching to safer and less volatile instruments which will guarantee returns and have minimal risk. You do not want to end up in a situation where your funds have depleted due to stock market crash when your son needs the money for his fees. Investing money for your child’s future is no simple task given the current dynamics, one has to plan systematically and keep reviewing the returns vis a vis the risk. But it goes a long way in securing yourself financially and avoiding any last minute anxiety and rushing to the bank/people to borrow money on unfavourable terms just because you failed to plan well. Its As parents, it is our responsibility to support our children holistically and financial support is a crucial part which requires us to lay the foundation stone at an early age. So lets not take this for granted and start planning now! Parents make sure you #DoYourHomework

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