funds would then be utilized for the child's life stages. At best, parents would make investments in fixed deposits with the intention of providing from the maturity proceeds. However, it would be safe to say that such an approach is not only outdated, but also not enough in the present scenario.
Inflation or a general rise in prices can be credited as the single largest contributor for this situation. None of the areas like education, marriage or even one's lifestyle are left unscathed by rising prices. Hence it is very important that parents account for this phenomenon while providing for their children’s future.
An example should help us explain this better. Assume that a 2-year MBA program in a leading business school costs Rs. 500,000 at present. Your child is 5 years old now and will pursue the management degree at the age of 20 years. This gives you a time frame of 15 years. Assuming that the inflation rate is 7% per annum, the education would cost Rs.13, 79,516. Now that seems a handful, doesn't it?
However, if you have an investment plan in place, this target can be easily achieved.
Funding for your child/ children's education / wedding is one of the valuable gifts you can give them and it is possible for you to do it in the most uncompromising way.
How to invest for your child?
The most demanding journey begins with a small step. When it comes to something as important as planning for child's education and marriage that small step means setting yourself an important objective.
You have to plan your investments, execute the investment plan and track it regularly. If this sounds a little complicated, don't worry, please have patience to go through the following steps.
Step 1: Set your objectives very clearly
When you plan for your finance for long term and short term goals you should ask yourself why you want to invest. For a married couple with children, the answer could be the child's education or marriage.
We may come across interesting objectives like savings for your own marriage after 5 years, savings for your child’s education after 15 years and savings for your child’s marriage after 20years. Also a plan for property purchase and for retirement.
This apparently long list could be even longer when you take into consideration objectives that are strange to you. Once you have the investment objectives in place, the next step is to prepare an investment plan to achieve those objectives. This may sound scary, but it isn't, when you consider that it's your investment consultant who has to draw up the investment plan and your role is limited to giving him inputs in terms of your investment objective. You need to be straight forward and should give your sincere opinion on your future plans, appetite for equity-linked investments, investment time frame, tax-efficient returns etc.
Step 2: Preparing an investment plan
Prior to this you need to identify your investment consultant. Once you have identified your consultant, you have to think how you can implement the investment plan keeping in mind the investment objectives.
For this you need to talk to him exactly what you want to achieve. You should also mention the time frame over which you want to achieve the investment objective, the amount of money you want to invest in equities. If you find this a little too exhaustive and even unnecessary, remember it's important for the consultant to know this so that he can prepare a well-defined investment plan.
The plans could be:-
- A plan for your child’s education.
- Unit Linked Insurance policy / Mutual Fund SIP investment for marriage?
- Required insurance for family protection.
- An investment into diversified equity fund to build a corpus to buy property after 5 years.
- Retirement plan etc.
Step 3: Executing the investing plan
After preparing the investment plan, your investment consultant will help you execute it. This involves, for instance, taking the child insurance plan for your child's education/marriage, or the diversified equity fund to build a corpus to buy property after 10 years.
All the investments and insurance options that have been outlined in your investment plan have to be bought. Of course your consultant will help you with it, but it pays to be personally involved up to a level.
Step 4: Periodical review of your investment plans
Setting the investment plan in action is an important step towards achieving your financial goals. Your investment consultant should review your investment plans on regular intervals.
There could be several reasons why your investment plan may need to be adjusted from time to time. One instance is when stock markets change course over a period of time and they disturb your asset allocation. So you may have to redeem some of your equity investments or buy more of them depending on how much risk you are willing to take.
Step 5: Redeem your investments
As the event you have been saving for, is upon you, you need to redeem your investments. As you approach the milestone (child's engineering admission or marriage), you need to get out of equity investments since equities are risky in the short-term.
That money should be invested into short-term debt, which is relatively safe. Again, all this may sound very complicated, but your investment consultant is the one who will keep his eye on such events and will make necessary adjustments to your investment plan. On your part it helps to be informed since it's your money is on the line.
As you can see, setting financial goals, outlining an investment plan, executing it, reviewing it, is not really a difficult task. It may be time consuming but it's certainly not difficult. With a systematic and disciplined approach to investing and by identifying the right investment consultant, financial paradise could be closer than you think.
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