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A lot of the prevailing belief is that once you have a kid, your constant priority has to be them. While this can be true when they are newly born or young, it doesn’t have to be true when they are independent enough. That’s because as children advance in age, the priority becomes the child’s financial future. So to give them a great headstart in life, some things need to be considered from the onset. Of utmost importance here is a robust investment plan.
There are many reasons to invest in your child’s future. Each family has its own set of reasons for securing the child’s future. Some of the broader ones are listed below:
Reasons to Invest in Your Child’s Future:
- Getting Access to Education without fuss. The expense of attending college is rapidly rising. Early investing protects against inflation and frees up funds for your child to attend college without having to take out large loans.
- Begin the process of achieving financial independence now. Your youngster has a head start on financial freedom with a nest egg. They can put it toward starting a business, saving for a down payment on a home, or just having a safety net.
- Financial planning teaches important lessons. Instilling important financial literacy in your child comes from engaging them in age-appropriate conversations about investing and saving. They discover the value of postponing gratification and practising frugal financial management.
- It gives you peace of mind to know you’ve given your child a solid financial foundation for the future. As they move through the turning points in life, they’ll have greater choices and adaptability.
Investing isn’t just about money; it’s about giving your child the freedom to pursue their dreams and navigate the future with confidence.
Questions First:
How to best invest in your child’s future? There are many factors which help you in making that decision, however, your current income is the first measure of how to go about with it. The points and questions below will help you get a clear picture of how you can start preparing for your child’s future today.
What are your investment goals?
- Are you saving for college?
- A down payment on a house for your child?
- Or just to help them get started financially?
Knowing your goal will help you understand which investment option you can pick up.
Time Frame:
- How long do you want or can invest?
- The longer your time frame, the more risk you can take up. More time comes with the ability to ride out the market uncertainties.
The time frame plays an important role in ensuring the various combinations of investments you can take up keeping the child’s age and benefits accrued.
Risk tolerance:
- How comfortable are you with the possibility of risk-taking?
With certain kinds of investments, there are risks and returns to be figured out. The catch is that higher-risk investments generally give higher returns, but also come with the probability of greater losses.
After considering these 3 points, you can have a look at what options you can have. For investment purposes, the portfolio can have a customized mix of different investment options. Again, as we said earlier, it depends on your income.
Popular investment options for children's futures:
Savings accounts:
Bank accounts in India commonly offer low loan fees contrasted with other venture choices. While they are a protected cash-saving tip, they probably won’t be a great choice for becoming your youngster’s future necessities because of rising inflation. Bank accounts offer loan fees of around 3-4%, which may not stay up with the inflation rate. This implies that the buying influence of your cash decreases over the long haul. However, it is a good start for uncertain-income families to rely on a savings account that works on a custodial basis for a minor child in the name of parents/guardians which can be shifted to the child’s name after they are 18 years of age.
Government-Supported Investment Choices:
India offers a few investment choices explicitly intended for youngsters’ future objectives. These can give better yields and develop the investment funds altogether over the long haul. The following are a couple of Government Schemes available:
- Sukanya Samriddhi Yojana: This government program is intended only for young girls. Tax savings and attractive interest rates (now 8.6%) are provided. The girl can continue to make deposits until she turns 14 and the account matures in 21 years.
- PPF (Public Provident Fund): PPF provides favourable tax advantages and interest rates. It is appropriate for long-term objectives because of its 15-year lock-in period.
- National Savings Certificates (NSC): NSCs have a five-year maturity period and fixed interest rates. When the money matures, you can reinvest it for even more growth. Section 80C of the Income Tax allows for tax rebates on investments up to Rs 1 lakh annually.
Alternative Choices:
- Unit Linked Insurance Plans (ULIPs): These offer investing benefits in addition to insurance coverage.
- Child Plans: A lot of insurance providers give child plans that pay out in full at a set period in the form of a lump sum amount.
- Mutual Funds: You can invest a certain amount regularly in mutual funds that increase in value over time via Systematic Investment Plans (SIPs).
- Risk-free Debt Funds:
Debt funds make investments in fixed-income instruments, such as government bonds. When compared to equities funds, they provide moderate returns at a reduced risk. For a well-balanced portfolio with some room for growth, this can be a smart choice. - FDs, or fixed deposits: For a set amount of time, bank fixed deposits guarantee returns. Interest rates are typically regarded as a safe alternative, though they might vary based on the bank and tenure. Returns, but, might be less than with alternative options.
Points to Remember:
- In general, low-risk investments have a smaller potential return than high-risk ones.
- Think about the length of time you can invest the money or your investment horizon. Better returns are possible with some risk over longer periods.
- It’s important to diversify. To strike a balance between safety and growth, consider a combination of low- and moderate-risk solutions.
- Get going early. Compound interest can accumulate over time. Your child will have more money in the future if you begin investing earlier.
- Make regular investments. Regular investments of even modest sums of money can yield substantial growth over time.
- Introduce your kids to money. Assist your child in realizing the value of investing and saving. They will have a solid financial future thanks to this.
It’s crucial to conduct due diligence and select the financial solutions that are best for both you and your child. For individualized guidance, you might also want to think about speaking with a financial expert for the best plans.
