As parents, we naturally want the best for our children. One crucial aspect of securing their future is ensuring their financial well-being. By investing wisely, parents can maximize their child's financial potential and provide a strong foundation for their future.
In this article, we will explore various investment options suitable for parents, highlighting their benefits, considerations, and strategies for optimization.
Plan Your Child Future
The sooner you start planning on it, the better the chance of reaping the rewards.
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A crucial aspect of financial planning is figuring out how much money they must accumulate to meet their children's dreams.
It is important to consider inflation in your decision-making process.
Once you have figured out the goal you want to achieve, you can determine the amount you must save to achieve your goals.
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Selecting the most effective plan
It's hard to recommend the best investment option since the requirements and needs of each product differ. However, there are some general guidelines you can adhere to.
Set up Child Goal Amount
To reach the specific goals that your child has set, calculate the possible value of the amount needed after adding inflation.
It will allow you to save enough money for the long-term goal of investing in equity because they offer better inflation-adjusted returns than other assets.
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For instance, an event that costs 25 lakh today will cost around 60 lakh 15 years from now, at an inflation rate of 6 %. Suppose equity investments produce a return of 12 % over the coming 15 years.
In that case, you can estimate the savings per month. You can also calculate the savings per month you must make to fund your child's college education. Approximate 21.62 lacs invest one time or monthly SIP 12,000 for achieve your child financial goal.
Child Investment Plans
Life Insurance Plan
They are the most well-known children's investment plans on the market. Majority of the intermediaries, like Banks or agents, first suggest child insurance plans. Because their popularity is not based on the product's benefits but on the commission that intermediaries earn.
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Children's ULIPs (Unit Linking Insurance Plan):
Cost of the premium is deposited into a fund of money invested in equity and debt instruments. The risk is reduced if the plan is purchased for a long period (more than 10 years). The returns can be substantial because it's an investment product linked to the market.
Child Endowment Plans:
The amount paid is only invested in debt-related products. The potential returns might not be as great as those of Child ULIPs. These plans are suitable for short-term planning (less than 10-years).
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It is not recommended to combine life insurance with investments since the expenses for this type of plan are much greater.
The aim behind insurance plans for children is to Insurance Child investment plan is first to give protection needed in the event of an eventuality and then to return, not the other way around.
Fixed Income Products
Fixed return products such as Government Schemes or Banks FDs such as Sukanya Samriddhi Yojana, Public Provident Fund (PPF) have advantages and drawbacks.
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The benefit of these schemes is the guaranteed returns & capital safety.
Taxation is one of the major drawbacks of these investment options. These investments are taxed annually, which means you must pay tax each year on the interest you earn, regardless of when you decide to withdraw your investment and at the tax rate.
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Public Provident Fund -PPF
Public Provident Fund is a small savings scheme that comes with security from Govt. of India on the investments and the interest. You can open a PPF account at any major bank or post office.
PPF account is locked in for 15 years, so you can't withdraw it whenever you'd like.
However, the ability to withdraw partial amounts is under certain conditions and conditions and only after a certain period.
Public Provident Fund is one of India's most reliable Child Investment Plans for investors with low risk who are looking for safe yields after a 15-year timeframe. The interest earned from PPF is tax-free. PPF investments PPF is qualified for tax exemption under the law of 80C, up to 1.5 Lakhs per year.
Sukanya Samriddhi Yojana – SSY
The legal guardian or the natural person can open an account for the girl child under ten years old. A depositor can create and operate only one account under the name of a girl according to the scheme's rules.
The legal guardian or the natural parent of the girl child is permitted to access the account for two girl's children only.
Read More Detail for SSY Scheme
Mutual Fund
When looking for the best strategy for investing with mutual funds, similarly is children's investing process.
The best part is that minors can participate in any mutual fund scheme offered for adults.
Some schemes are specifically designed for children and are generally referred to under “Hybrid” or “Child Care Plan” or ‘Children's Gift Fund.' They are typically constructed as a mix of fixed-income equity and securities with 60-70 percent exposure to equity stocks.
Don't necessarily select Children Gift Fund (CGF) MF schemes for children.
Gift Funds invest in a combination of Debt and Equity Instruments.
The funds must be used for long-term objectives. When investing in such an investment, one must avoid market volatility in the short term and concentrate on the return which will be realized within the next few years.
The Right Mix Asset Allocation
When you are planning for your child's future, it is best to stay with large-cap funds because they invest in established top-tier businesses and are less volatile.
They offer reasonable returns when equity markets are up and less unstable when equity markets decline.
A small amount of risk of mid-cap funds, which have been known to provide rapid increases in their performance, along with high-risk funds like thematic funds, is a great way to maximize return.
Certain investors are very cautious, and others are more aggressive. Be sure to explain to your financial advisor precisely what kind of risk you're willing to take for your investments. Plan your portfolio accordingly.
Require Document for a minor
Two essential documents are needed to open an account in a mutual fund for minors. First, documents that prove relationships between the child's parent and guardian are required.
In the case of a parent or guardian, it is necessary to present the birth certificate. Other documents that state parents' names is enough. If it is another person having the same name, a copy court order is necessary.
Additionally, the minor's birth certificate or proof of age is mandatory. In addition, the minor's parents or guardian will need to comply with KYC as per the rules. If the minor is deemed an adult, the whole KYC process must be conducted in her name.
Selection Scheme in Portfolio
Suppose you're looking for a long-term look at the MF targeted schemes based on the following factors.
Examine the fund's long-term performance. Consistency is a major factor in the long run. It is crucial most when the final value of the amount of money is considered.
The performance of funds in the family could be different because they are run by other managers and possess different portfolios.
Therefore, please carefully review the scheme's performance, its investment portfolio, and the investment strategy the scheme adheres to.
Approach
After estimating the savings per month needed and identifying different MF plans, choosing the best strategy is important.
SIPs or systematic investment plans (SIP) require you to invest an amount fixed in money over some time instead of investing a massive lump amount.
This kind of investing is suitable for people who cannot invest in lump sums but want to invest consistently.
In this way, you do not have to experience the fluctuations and highs in the markets. Instead, the price that you invest is figured out over time.
The idea behind SIPs is that investors will automatically purchase more units when the market is down. Additionally, they buy fewer units when the market is rising. So, the price per unit will decrease over time.
It aids in saving money and doesn't force the need for money into a flurry at the last moment.
Additionally, a portion of a child's money in birthday gifts can also be invested in MFs.
Review Portfolio
You will have a time frame of 15 to 20 years in which you can build an asset to provide for the child. Be sure to track your investments and speak to your finance expert at least once a year about the same.
It is essential to be aware of the status of your investments at least once every year, at a minimum.
What happens after child is 18?
When minor complete the age complete KYC Process and required documents to alter the status on the folio from minor to major. In addition, KYC acknowledgement letters from the unit owner becoming major must also be provided.
Be aware of your objectives and plan for the future:
If you want to be prepared, you should know the amount you'll need for your child and the time frame (for education and marriage, among others). When you estimate the amount, you should consider the expected inflation rate.
Know the product and the cost involved:
Insurance companies can be liable for certain charges that need to be paid by the client. Therefore, you must compare the various insurance products and pick the most appropriate one.
Conclusion
Higher education for children is among the top financial goals for parents. With the cost of quality education growing fast, it is essential to start early and remain committed to your financial plan to help your child achieve their goal. Mutual funds are the best investments for your children's education planning.
Selecting the most effective plan
It's hard to recommend the best investment option since the requirements and needs of each product differ. However, there are some general guidelines you can adhere to.
Set up Child Goal Amount
To reach the specific goals that your child has set, calculate the possible value of the amount needed after adding inflation.
It will allow you to save enough money for the long-term goal of investing in equity because they offer better inflation-adjusted returns than other assets.
For instance, an event that costs 25 lakh today will cost around 60 lakh 15 years from now, at an inflation rate of 6 %. Suppose equity investments produce a return of 12 % over the coming 15 years.
In that case, you can estimate the savings per month. You can also calculate the savings per month you must make to fund your child's college education. Approximate 21.62 lacs invest one time or monthly SIP 12,000 for achieve your child financial goal.
Child Investment Plans
Life Insurance Plan
They are the most well-known children's investment plans on the market. Majority of the intermediaries, like Banks or agents, first suggest child insurance plans. Because their popularity is not based on the product's benefits but on the commission that intermediaries earn.
Children's ULIPs (Unit Linking Insurance Plan):
Cost of the premium is deposited into a fund of money invested in equity and debt instruments. The risk is reduced if the plan is purchased for a long period (more than 10 years). The returns can be substantial because it's an investment product linked to the market.
Child Endowment Plans:
The amount paid is only invested in debt-related products. The potential returns might not be as great as those of Child ULIPs. These plans are suitable for short-term planning (less than 10-years).
It is not recommended to combine life insurance with investments since the expenses for this type of plan are much greater.
The aim behind insurance plans for children is to Insurance Child investment plan is first to give protection needed in the event of an eventuality and then to return, not the other way around.
Fixed Income Products
Fixed return products such as Government Schemes or Banks FDs such as Sukanya Samriddhi Yojana, Public Provident Fund (PPF) have advantages and drawbacks.
The benefit of these schemes is the guaranteed returns & capital safety.
Taxation is one of the major drawbacks of these investment options. These investments are taxed annually, which means you must pay tax each year on the interest you earn, regardless of when you decide to withdraw your investment and at the tax rate.
Public Provident Fund -PPF
Public Provident Fund is a small savings scheme that comes with security from Govt. of India on the investments and the interest. You can open a PPF account at any major bank or post office.
PPF account is locked in for 15 years, so you can't withdraw it whenever you'd like.
However, the ability to withdraw partial amounts is under certain conditions and conditions and only after a certain period.
Public Provident Fund is one of India's most reliable Child Investment Plans for investors with low risk who are looking for safe yields after a 15-year timeframe. The interest earned from PPF is tax-free. PPF investments PPF is qualified for tax exemption under the law of 80C, up to 1.5 Lakhs per year.
Sukanya Samriddhi Yojana – SSY
The legal guardian or the natural person can open an account for the girl child under ten years old. A depositor can create and operate only one account under the name of a girl according to the scheme's rules.
The legal guardian or the natural parent of the girl child is permitted to access the account for two girl's children only.
Read More Detail for SSY Scheme
Mutual Fund
When looking for the best strategy for investing with mutual funds, similarly is children's investing process.
The best part is that minors can participate in any mutual fund scheme offered for adults.
Some schemes are specifically designed for children and are generally referred to under “Hybrid” or “Child Care Plan” or ‘Children's Gift Fund.' They are typically constructed as a mix of fixed-income equity and securities with 60-70 percent exposure to equity stocks.
Don't necessarily select Children Gift Fund (CGF) MF schemes for children.
Gift Funds invest in a combination of Debt and Equity Instruments.
The funds must be used for long-term objectives. When investing in such an investment, one must avoid market volatility in the short term and concentrate on the return which will be realized within the next few years.
The Right Mix Asset Allocation
When you are planning for your child's future, it is best to stay with large-cap funds because they invest in established top-tier businesses and are less volatile.
They offer reasonable returns when equity markets are up and less unstable when equity markets decline.
A small amount of risk of mid-cap funds, which have been known to provide rapid increases in their performance, along with high-risk funds like thematic funds, is a great way to maximize return.
Certain investors are very cautious, and others are more aggressive. Be sure to explain to your financial advisor precisely what kind of risk you're willing to take for your investments. Plan your portfolio accordingly.
Require Document for a minor
Two essential documents are needed to open an account in a mutual fund for minors. First, documents that prove relationships between the child's parent and guardian are required.
In the case of a parent or guardian, it is necessary to present the birth certificate. Other documents that state parents' names is enough. If it is another person having the same name, a copy court order is necessary.
Additionally, the minor's birth certificate or proof of age is mandatory. In addition, the minor's parents or guardian will need to comply with KYC as per the rules. If the minor is deemed an adult, the whole KYC process must be conducted in her name.
Selection Scheme in Portfolio
Suppose you're looking for a long-term look at the MF targeted schemes based on the following factors.
Examine the fund's long-term performance. Consistency is a major factor in the long run. It is crucial most when the final value of the amount of money is considered.
The performance of funds in the family could be different because they are run by other managers and possess different portfolios.
Therefore, please carefully review the scheme's performance, its investment portfolio, and the investment strategy the scheme adheres to.
Approach
After estimating the savings per month needed and identifying different MF plans, choosing the best strategy is important.
SIPs or systematic investment plans (SIP) require you to invest an amount fixed in money over some time instead of investing a massive lump amount.
This kind of investing is suitable for people who cannot invest in lump sums but want to invest consistently.
In this way, you do not have to experience the fluctuations and highs in the markets. Instead, the price that you invest is figured out over time.
The idea behind SIPs is that investors will automatically purchase more units when the market is down. Additionally, they buy fewer units when the market is rising. So, the price per unit will decrease over time.
It aids in saving money and doesn't force the need for money into a flurry at the last moment.
Additionally, a portion of a child's money in birthday gifts can also be invested in MFs.
Review Portfolio
You will have a time frame of 15 to 20 years in which you can build an asset to provide for the child. Be sure to track your investments and speak to your finance expert at least once a year about the same.
It is essential to be aware of the status of your investments at least once every year, at a minimum.
What happens after child is 18?
When minor complete the age complete KYC Process and required documents to alter the status on the folio from minor to major. In addition, KYC acknowledgement letters from the unit owner becoming major must also be provided.
Be aware of your objectives and plan for the future:
If you want to be prepared, you should know the amount you'll need for your child and the time frame (for education and marriage, among others). When you estimate the amount, you should consider the expected inflation rate.
Know the product and the cost involved:
Insurance companies can be liable for certain charges that need to be paid by the client. Therefore, you must compare the various insurance products and pick the most appropriate one.
Conclusion
Higher education for children is among the top financial goals for parents. With the cost of quality education growing fast, it is essential to start early and remain committed to your financial plan to help your child achieve their goal. Mutual funds are the best investments for your children's education planning.
