Written by Bimlesh Singh
Tuesday, 27 December 2011 00:00
So you are a proud and careful father. How do I know this? It’s a simple question to answer. The fact that you have googled this article is enough proof in itself. Not all the parents are so serious about their child future, as planning is only visible in their intent and not action. The reason you cannot turn a blind eye towards his future capital requirements are so many like exponentially increasing education cost, persistent inflation, increasing rent, costly health care services etc. Congratulations to you for being an early bird and in this article we will be learning the investment planning for funding your child education and other needs once he is a fully grown adult.
Factors to keep in Mind before planning
There are certain points which one should keep in mind before choosing the investment options as it will help you in generating optimum capital in future. Let’s discuss them one by one.
- It’s a long term capital requirement - You need the money after eighteen twenty years. Longer time frame gives you the flexibility of choosing risky options and you have enough time cushions, if you change your strategy mid way due to some unavoidable circumstances.
- It’s a large amount – The amount which you will need in future is a big amount. If you opt for engineering, MBA or any renowned professional course today, you need approximately 2 to 4 lakhs to complete the education. If we take only inflation which is hovering round 10%, a very conservative costing estimate for pursuing same course will be round 20 lakhs after 20 years. It’s a huge sum.
As by now we have an approximate idea of the capital requirement and the timeframe let’s start exploring the investment avenues which will generate the required capital in given timeframe:
- Investment in PPF – One of the safest options of the lot is investment in PPF account. It has the power of compounding plus the guarantee of assured return. If you invest round 60000 to 70000 per year in PPF account you will be able to meet most of the capital requirement of your child after 20 years.
- Investment in Tax Free bonds – This option is even better as the interest earned is tax exempt. This also guarantees annual interest payment which can be reinvested. The only problem is its one time investment and there is no option of investment each year as PPF,s. One way of handling this issue is investing in different bonds every year.
- Investment in Equity – As the time horizon is very large it’s advisable to take exposure in risky assets like equity. It’s a well known fact that in longer time horizon equity asset class gives the maximum return. The only effort needed from you is doing research to find out some good companies to invest in. As it’s about your child the pain is worth taking. One additional advantage which comes with long term equity investment is capital gains are tax exempt.
- Investment in Real Estate/Land – If you believe in invest and forget philosophy and you have cash to invest best option for you is investment in real estate or land. Just select a piece of land at some good locality and it will automatically take care of all your future needs.
- Child Plans/ULIPS/Insurance – There are a lot of child linked plans being offered by various vendors and some of them might cater to your need. While investing in such plans just be careful about various kinds of fees the companies charge for managing your fund. In most of the cases the returns are not so handsome post the management fees.
Investing in options suggested above will definitely take care of your future needs. Taking an early decision will make the things easier for you but you need to be slightly careful while taking exposure in equities as it requires knowledge and monitoring at regular intervals. Hope you will not hesitate in making this effort as it will transform you from a proud father to proud and careful one.
Last Updated on Tuesday, 27 December 2011 18:41