Gift your child a secure future

Investing for your child’s future is the best gift you can give to your baby. But majority of parents not only underestimate the cost of raising a child, they don’t invest enough to secure their future, says A. L. I. CHOUGULE

The promise of a secure future is probably the best gift you can give to your child. One of the ways of securing child’s future is by investing a fixed sum in his or her name every month, so as to build a corpus over a longer period. Basically parents invest for certain major goals like education, marriage as also for giving a better and comfortable lifestyle to their children. But since each goal has a different time frame, parents should plan their investments accordingly by choosing separate investment options for each goal.

For instance, clubbing education with marriage is not a sensible idea because education comes first and marriage follows much later. Hence you will need money when your child is ready for college or a specialised higher education course which is well before you plan to get him or her married. Therefore, the two goals are separate and need different investment strategy and each option will also have a different time period.

Before you plan to invest for your child, it is important that you make an informed decision by considering the best options available for each goal. It is also very important that you consider various aspects like the cost of education, premium, inflation rate, time period and returns each investment product will give. Try and be clear about the risks and benefits ratio. Remember, longer time period is always better.

When it comes to choosing investment options for children, a lot depends on the child’s age. For instance, if the child’s age is 4 years, the investment choices and strategy will be different than for a parent whose child is 10 or 12 years old. Though it is never too late to invest, it is always better to start early. Parents who start late lose out on the power of compounding.

Majority of parents, according to investment experts, not only underestimate the cost of raising a child, but also don’t invest enough to secure the child’s future. As a result, they find problems in reaching their goal and run short on funds. As the best possible education is always every parent’s first priority, it is important that parents invest in best options to meet their children’s educational expenses. The rapid increase in cost of education is a known fact that cannot be ignored. Hence investing now should become a top priority, given the fact that cost of education has risen over 100 per cent in the last decade and half. Likewise, funds needed for any other goal – like marriage or a health-related emergency – needs similar planning.

We have identified some of the best options for your child’s future. You may decide on what suits you the best.

1 Risk cover for yourself: According to financial experts, the first step in securing your child’s future is to secure yourself first by opting for a term insurance plan against any unforeseen event. The probability of such an event happening would be low and cannot be quantified. But it is advisable to secure the future of dependants and to avoid the risk of financial stress on their lives.

2 Child insurance plan: It is advisable to opt for a child insurance plan that will give a lump-sum amount to the child in case of the parent’s demise with all future premiums waived off. The child will be given money at specific intervals of time. Many parents opt for this plan to provide for their child’s education needs in the event of an unfortunate premature death of parent.

3 Child career plan: This is a specially designed insurance product for meeting the educational and other needs of growing children. It provides the risk cover on the life of child during the policy term as well as extended term. In this plan, money is paid in instalments but the major amount comes only after the child attains the age of 18.

4 Public provident fund: PPF is a popular and one of the oldest long terms tax saving schemes which can be opened in a public sector bank or post office. It matures in 15 years but can be extended in blocks of five years twice. The interest rate is market linked and one can invest up to Rs. 1 lakh per annum.

5 Debt fund/Fixed deposit: These are traditionally the safest investment options opted by parents who prefer fixed returns. Generally, debt securities have a fixed maturity date and pay fixed rate of interest. Debt investment is generally more tax efficient than fixed deposit.

6 Sukanya Samriddhi Scheme: It is a small deposit scheme for the girl child, which comes with attractive interest rate and tax benefit. A Sukanya account can be opened any time after the birth of a girl child till she turns 10. The account can be opened in any post office or authorised branches of commercial banks. The account will remain operative for 21 years from the date of opening till the marriage of the girl after she turns 18.

7 Equities: The most volatile and risky investment, it is not meant for those who have aversion to vagaries of market fluctuations. But if you have an appetite for some risk, you can surely benefit from the returns that quality stocks can give over five to 10 years period. But you must choose the right stocks and your goal has to be investment and not short term gain. There are hundreds of stocks in the market that have given more than 100 to 200 per cent gains in five to ten years. You just have to identify them.

There is no dearth of investment products and options. But you should identify the best that suit your needs. However, make sure that you are well-informed about all available options as well as the ones you choose for yourself.