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Best children investment plans
1)How to do Investment plan for children.
There are many investment plans in the market, We all know that every parents has to plan for their children’s future. But I felt lot of the parents would see the security side of the children’s future, ignoring how well they can plan about security.
2)Why an investment plan is necessary for a child.
Children Investment plan is necessary for child education,daughter marriage and ......., Generally saving the money may not be sufficient. I hope all agrees that ensuring that money grows faster along with security is important thing to consider before we look for different investment options for children.
3)How parents are planning the investment plan for children now.
As per the survey conducted by a different news channel revealed that currently every parent is preferring to take an insurance policy for their child’s future. There are several number of insurance policies from LIC, HDFC ...etc. which are offering best child insurance plans. However all the insurance plans are not investment plan. Insurance plans are majorly for only for security purpose. In case the parent does not survive , the child’s education or daughter or marriage or any thing can be taken care without any problem.
4)How to do Investment plan for children
- Children Insurance plans: This should be a 1st step in investment plan for children. There are best insurance plans offered by LIC like Jeevan Anurag, Jeevan Kishore, Jeevan Ankur etc. There are private insurance companies which are also offering good insurance plans like HDFC SL Youngstar, HDFC Children plan etc.,ICICI ,BIRLA...... Consider the insurance plan only for security side and do not think insurance is like an investment plan.
- Investment in Debt mutual funds: Beyond insurance also, I would prefer every parent to invest in mutual funds(debt funds) so that the money grows faster and there would be little downside comparing to direct investing in stocks. Investing in debt mutual fund also would provide good returns comparing to investing in bank fixed deposits.
- Investment in Balanced mutual funds: Another option you can have for children investment plan is investing in balanced mutual funds(MF).And Balanced mutual fund invests 70%+ amount in fixed income securities and small portion in direct stock markets. Hence there would be capital protection and also there is very little downside. However over a long run, you can benefit from investing in(MF) balanced mutual funds.
- Invest in ULIP: There are several unit linked insurance plans(ULIP) which are insurance plan cum mutual fund where insurance company would allot mutual fund units and such investments would be made in direct stock market to some extent. Hense however in earlier days of ULIP’s, there were huge expenses charged to ULIP’s holders. Check for ULIP’s which charge less expenses before you choose this as investment option.
- Investment in gold: Another best option for children investment plan is investment in gold. One of my friend is accumulating gold for her child’s beautiful future. Since this is a good safe investment option and also investment in gold has given 22% annualized returns in the last 8 to 10 years, no doubt this is a good investment option for child’s better future. However you need to decide to whether to invest in Gold ETF or in physical gold.
- Investment in Post office MIS schemes: Investing in post office MIS schemes is also another advisable option. Investment in Post office MIS(monthly investment schemes) scheme would provide good returns of 8% + comparing to 6% returns on investment in insurance plan.
- Investment in bonds: Investment in bonds , tax free bonds is also good option where your money is secured and you would get 8% + returns.
- Investment in PPF: Currently PPF(PP fund) is offering 8% + annualized returns. This would be a good investment option when bank rates are falling as it provides higher returns. PPF account can be opened when a child is born & since this account needs to be opened for 15 years, during the maturity the investment amount can be utilized for their child's education.
- Investing in NSC: One of my ex-manager has a habit of investing in NSC(National saving Certificate) every year. After six years, he re--invests the same without withdrawing the same. He has done this for almost 15 years until their children have grown and he needs to meet his children’s higher educational expenses. He started utilizing it when the child has started his higher education (college). I felt this is one best way of planning for child’s future.
- Investment in bank fixed deposits(FD): Investment in bank fixed deposits like SBH double ka metha where your money would be doubled in seven years is also a good investment option.
An increasing no of Indian parents is doing that today. In an online survey conducted by ET for ET Wealth last week , 63% of the 1,908 respondents said they(Parents) started saving for their children's education when they were born. Another 9.2% had started even before the kid(child) was born (see graphic).
That's great news, because the initial stage you start, the long term available for your investments to grow, also the bigger the corpus.
But are Indians choosing the right options when investing for their children! Here's the bad news. An overwhelming majority ' is opting for low-yield instruments. Morethan 45% of the respondents in our survey said they invest in the Public Provident Fund (PPF) and fixed deposits for their children.
Another 38% have invested in traditional insurance policies(safety). Despite the numerous options available, Indian parents continue to rely on bank fixed deposits due to lack of awareness,
The encouraging part is that 43% also invest in equity mutual funds(stock market) and stocks for their children, while 26% have opted for child insurance plans that provide for the education of the child if the parent has no more.
The skew towards low---yield products also means that many Indian parents might fall short of the targets they have set for their children's investments. ET Wealth estimates that raising a child in urban India from cradle till college costs roughly Rs 57 lakh.
The calculation assumes that the child will take up a professional course costing Rs 11 lakh. This is the cost at today prices and the amount has to be adjusted for inflation. Now comes the scariest part. Education costs, which constitute nearly 47% of the total expense on a child, are growing at a worrying pace of 20-26% per year,
Formulating strategy
Fortunately for parents, there are more investment products to help them fulfill the dreams for their children. these options can help you save enough to send your daughter or son to the best medical college in the country, or book a ritzy star hotel for your son's wedding.
How does one choose the correct product! The first thing to understand is that there is nothing to differentiate the investments made for childrens(childs) from the rest of your portfolio.
They are exposed to the same risks offer the same returns and are taxed at the rate. No mutual fund will give units at a discount and offer guaranteed returns just because a parent is saving for his child. No bank will announce you a higher interest rate.
No insurance company will charge a less premium. The taxman too will not exempt any --income. So the same rules that govern your own investments should apply to those made for your (childs)children.
Your choice should depend on four basic factor: the tenure of the --investment, the risk you are willing to take--, the returns provides by the option and the taxability of the income. Here is how these four factors can affect your investments.
Tenure of investment----
Are you saving for your daughter education? Or for your son marriage? Financial planners say it is best to define your goals & segregate the investment for each goal.
Since every goal has a different time frame, separating them will allow the parent to choose the most appropriate investment to reach that goal,
The stock market has historically been the good place to park your money for the long term. There are more studies to prove that equities give the highest returns in the long term.
Don not invest in a long-term fixed deposit for your daughter's education when she is just a toddler. The money that is not going to be touched for a long period should ideally be in equities.
For every parents, defining a goal that is 15-20 years .
We are putting money in a mix of balanced and equity mutual funds," says the manager in an MNC(Multi National Company). That might work fine for the Vinjamuris right now as their 1st goal is at least 15-16 years away, They will have to plan for their each expense separately.
