10 Rules to Keep in Mind to Secure Your Child’s Future Financially

The joy and excitement of becoming parents also bring with them responsibilities, including a secure financial future. Building a life and future for the child that is financially secure is something every parent has on their priority list. Now the question is, how do you plan to secure your child’s future financially? The answer involves smart planning, constituent savings and investing, and focusing on long-term goals.

This is where a financial planner or an investing advisor can guide you towards the right path and strategies. While you get to planning, keep these 10 golden rules in your mind!

1. Leverage the Power of Compounding

Education is one of the biggest expenses in a child's life. With fees increasing annually, parents must begin constructing a heavy corpus early on. Fixed deposits may help, but may not be sufficient. Disciplined investment channels such as SIPs (Systematic Investment Plans) can aid you in availing yourself of compounding.

The longer your investment remains, the more it will accumulate. For instance, investing in mutual fund equities using SIPs can lower the amount you need to invest each month by virtue of the compounding factor.

As you can see, equity funds require the lowest SIP contribution while offering higher growth potential due to compounding.

2. Begin Early

The sooner you begin investing, the longer your money has to grow. Early investment helps you ride out risks and earn higher returns.
Consider this example:

As seen in the table, you can build a high corpus even with smaller amounts if you start early. A personal financial planner can help come up with a long-term plan.

3. Have a Comprehensive Insurance Policy in Place

Investment is not sufficient on its own. Insurance acts as the safety net for unpredictable events. It will keep the child financially protected even in the absence of the parent. An investment planner might recommend proper education planning with life insurance to have a total financial safety net.

Here's how the corpus builds up:

4. Consider Inflation While Planning

Indian education expenses double every six years, approximately. Inflation consumes savings, and therefore, a plan that appears adequate today can turn out to be inadequate tomorrow. Parents need to consider inflation in every choice, be it education planning, medical care, or a wedding. It is important to estimate returns to compensate for inflation so that the corpus remains intact despite increasing expenses.

5. Preserve and Prioritise Critical Aims

Children's financial planning goes beyond saving and requires smart prioritisation. Wedding, healthcare, and education may all be priorities, but they must each be individually covered. A family financial planner might suggest, for instance, purchasing several term plans on different goals, so that each goal is well-funded without jeopardising the others, as one possibility.

6. Choose a Premium Waiver Plan

Life is not certain. In the event of a parent's death during the investing period, a premium waiver allows the plan to go on without additional contributions and the child remains entitled to the planned benefit. This protection is an absolute necessity in any child plan and gives parents peace of mind.

7. Invest in High-Yielding Schemes

Early investment offers the opportunity to access higher-yielding schemes, such as equity funds. With risks being higher, the long-time investment horizon provides the scope for recovery from market losses. A robust investing guide can help you find the right balance between risk and return by selecting high-growth funds suitable for long-term goals, such as higher education.

8. Incorporate Partial Withdrawal Plans in the Portfolio

Emergencies may arise unexpectedly. A plan that allows partial withdrawal will give parents the flexibility to access funds during an emergency without risking the entire investment. This feature will further enable parents to adjust plans according to both short-term and long-term requirements.

9. Nominate a Nominee

It is very important to appoint a responsible nominee. In the case of the death of a parent, the nominee will retain the claim amount until the child comes of age. Generally, parents are advised to choose a nominee carefully, selecting someone who is dependable, honest, and dedicated to the child's best interests.

10. Keep Reviewing Your Plan Periodically

The market keeps fluctuating, the inflation rates keep changing, and new products keep getting launched in the market. Naturally, parents must regularly review and adjust their child's plan. The key is to adjust investment strategies and avenues in a way that aligns with both short-term and long-term objectives.

Conclusion

Investing in your child's future takes a disciplined financial plan that combines protection, growth, and liquidity. By beginning early, taking advantage of compounding, considering inflation, and having the proper combination of insurance and investments, you can create a solid financial buffer. No matter if you use a personal financial planner, an investment planner, or a seasoned investing advisor, the principles are the same: plan ahead, review frequently, and remain disciplined .

Disclaimers:

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.