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Do it Yourself : Planning for your child's future

Updated: Sep 29, 2019

Planning for your child can be a tough task, especially with the increase in inflation and spiralling cost of education. For many people one of the major concerns these days is planning the finances or the amount of money to be kept aside for the child which can lead to their safe and secure futures.


Planning for your child requires careful consideration of a lot of factors, like the amount of money you are earning right now, the expected rate of inflation, the amount of savings you are having right now and expected to have in future, the investments you have made and the average and expected rate of return you are able to generate from the same. All these factors taken into consideration and estimating the cost of raising your child, whether your

savings and returns can cover up the two most important goals of your child's life - Education and marriage till the time he or she is dependent on you.


Here are a few additional hacks which are listed which can help you in financial planning for your child ahead in line and ensure sufficiency, the thing that you need to keep in mind is that your child will have both long term and short term needs, while short term needs are more like regular expenditures which happen in daily life, it can form part of your monthly or quarterly expenditure budget and need not be separately considered for, for long term needs like education and marriage we need to think 20-25 years down the line and invest accordingly in mutual funds or PPF's as described below,


1. Mutual funds - Mutual funds though is popular across the world , but in India still many people prefer to invest in fixed deposit and other saving scheme than investing in Mutual fund. Mutual funds are an ideal option available to beat inflation and create wealth in long term. Mutual funds have total equity schemes or a equity debt scheme where you can allocate 65:35 or whatever allocation is reasonable as per your desired return and the amount of risk you can undertake. You have the flexibility in mutual funds to either invest in lumpsum or through a SIP. For more details and better analysis click here


Advantages


1. Mutual funds can generate higher return over a long term (generally over a period of 15-20 years)

2.Investor will get personal accident insurance coverage

3.Helps in creating a well diversified portfolio and a balance between debt and equity can reduce the risk

4.investments in Mutual fund are easy to understand and are managed by a third person, so your spouse or parents can also do the same


2.Child insurance plans - These are basically insurance cum investment products, the parent(s) are covered in a child insurance plan and child is the beneficiary in case of untimely death of parent(s). One such child policy which can be considered is child ULIP's (Unit linked insurance plans), The companies offering such child policies are HDFC, ICICI, AVIVA, Max Life, SBI life and Kotak.


Advantages


1.Inbuilt premium waiver rider ensures continuity of plan on parents demise

2.Tax rebate of up to Rs 1.5 lakhs under sec 80 C of IT act

3.Alternating between funds is permitted and not subject to taxation

4.Flexibility for making pay outs, ensuring the child receives maximum money when required

5.Partial withdrawal is possible


3.Public provident funds - PPF is one of the major saving scheme offerred by the government and the current interest rate is 8%, the lock in period of 15 years can extend in the block of 5 years each, you can open PPF account at nationalised bank, post office or major private bank.


Advantages


1.Guaranteed returns as set by government every quarter

2.Interest earned is completely tax free

3.Contribution eligible for tax exemption upto Rs 1.5 lakh under 80C of IT act

4.Partial withdrawal is allowed after 7 years of opening the account



4.Sukanya Samridhi Yojana - Sukanya samridhi yojana is a part of "Beti Bachao, beti padhao yojana" for the benefit of the girl child. Parents can open up to two such accounts for girls (they cannot open a third/fourth account etc, if they have more than two girls). These accounts have tenure of 21 years or until the girl child marries after the age of 18. It is a government backed saving scheme account, which can be opened by parents or legal guardian of the girl child below 10 years, it can be opened for maximum of two girls in one family, only one account per girl child is allowed.


Advantages


1. Provides better returns as compared to other government schemes

2.Accounts mature after 21 years from issuance or on the day of marriage, whichever is earlier

3.Tax benefit is offered u/s 80 C of the IT act

4.Minimum investment amount - Rs 250 and maximum amount Rs 1.5 lakh annually

5.Partial withdrawal allowed when child reaches 18 years of age or completes graduation


When investing in your child's future, you should consider the safety, returns and tax liability that may arise from such investments. Also you would need to review your investments portfolio once in every six months to see if it requires any readjustments.



Happy planning!






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