Every year, your child’s birthday is the most special day. You celebrate the arrival of your bundle of joy. It is the day you shower all the attention and love on your beloved. More often than not, it is also accompanied by expensive and fancy presents. These gifts manifest your love, but beyond that, they serve a limited purpose. The gifts have little utility for the child’s future, something that every parent wants to secure. As per a survey by ASSOCHAM, the rising cost of education is a cause of worry for many. An average parent spends more than 20 lacs on children’s education till high school only.
If you too are a parent who knows how to indulge your child, but clueless about right preparation for his / her future, then this article is for you. And what better than to make a start now.
Financial preparation is of utmost important for realizing child’s dreams and if you haven’t yet, then you should consider investing for your child right away. Some of the ways you can invest are here:
- Public Provident Fund
It is one of the preferred options to invest risk free.This scheme comes with a lock in period of 15-years. The current interest rate offered is 8% p.a.# for the 15-year period.It comes with EEE (Exempt, Exempt, Exempt) feature for tax saving i.e. your investment is exempt from taxes at the time of investment, accumulation and withdrawal subject to prescribed limits. The high rate of inflation in education costs is a major concern while choosing this option since it may not be able to provide inflation beating returns over the long term.
- Direct Equity
Over the past 10 years, Sensex (BSE’s stock market index) has given attractive annualized returns. To illustrate,10 years back if you had invested Rs. 10,000 in Sensex instead of giving a gift to your child, it would have accumulated to around Rs. 45,900* by now. However, investing in equities directly is not usually preferable for the uninitiated and requires great expertise and research to find right investment opportunities in stock markets. It comes with a considerable amount of risk and consulting a financial expert is advised before investing.
- Mutual Funds
Those who wish to invest in equities but do not have time or expertise for the same can invest inequity mutual funds for their long-term investment needs. Mutual funds minimize risk through diversification while also providing returns on investments at the same time. Selecting and staying invested in the right mutual fundfor long term may work wonders for your child’s future. You can start with monthly investment of as small as Rs. 500 toinvest in mutual funds viaSystematic Investment Plans (SIPs)for requirements such as marriage or a degree from foreign university etc.
Considering the high intrinsic value that it has, you can invest in gold as a security for your child’s future. For investment purpose one can buy gold in digital form (i.e. ETFs, bond etc.) instead of physical form which provide for similar returns without the requirement of holding gold physically. Typically, a small portion of your portfolio may be in gold.
- Real Estate
Traditionally, we all have been investing in real estate for our long-term investment needs. Characteristically, real estate investments may provide returns over the long term, but also have higher transaction costs and low liquidity.
If you are parent to a girl child, then you can consider SukanyaSamriddhiYojana (SSY), which can be opened in her name upto 10 years of age. A minimum of Rs 250 and maximum of Rs 1,50,000 in every financial year, up to 15 years can be deposited. The rate of interest offered (as in the quarter Oct-Dec ’18) is 8.5% per annum^. The tenure of SSY account is 21 years from the date of opening the account.
When to start investing?
It is feasible to start investing as soon as possible, since greater the time period, the more is the scope for returns. Furthermore, continuity is yet another significant factor to sustain investments and to ensure the targets are met. For instance, parents may want to invest in order to accumulate funds for high education related expenses. In such cases, putting money into long-term SIPs at a very young age, even before child’s birth, is desirable.
So, on your child’s birthday, secure his or her future by making a smart choice. That would be an ideal gift!
*Source: BSE Sensex TRI returns in last 10years - https://www.advisorkhoj.com/mutual-funds-research/mutual-fund-benchmark-monitor
^Source: - https://cleartax.in/s/sukanya-samriddhi-yojana
Mutual fund investments are subject to market risks, read all scheme related documents carefully.