HOW TO INVEST FOR KIDS
· Start saving immediately after the birth of the child.
· The earlier you begin, the more the time available for your investments to grow, and the bigger the corpus for securing his financial future.
· Don’t lean towards low-yield products alone, as you might fall short of the targets you have set for your children’s investments.
1. Formulate a strategy
· Choose investment products appropriately, to help you fulfill your children’s dreams.
· Your choice of products should depend on 4 basic factors:
o The tenure of the investment
o The risk you are willing to take
o The returns offered by the option and
o The taxability of the income.
2. Goal-based investment
· It is best to define your goals and segregate the investment for each goal.
· Since each goal has a different time frame, separating them will allow the parent to choose the most appropriate investment to reach that goal.
· The money that is not going to be touched for a long period should ideally be in equity-based investments as they give the highest long-term returns.
· Therefore, put money that is required after 15-20 years in a mix of balanced and equity mutual funds.
3. Risks and returns
· Choose options that suit your individual risk tolerance.
· If needed, get your risk profile assessed by a financial planner.
·
Again, your ability to take risks depends on the time available.
· Therefore, for a short-term goal, put the money in debt fund, or even in a fixed deposit.
· For a long-term goal, however, a portfolio of stocks and equity funds works best.
· Remember that the higher the risk you are willing to take, the higher your returns could be.
4. Taxability of income
· Keep in mind the income tax rules that apply to your investments, as your child’s income is actually considered your own.
· Go for tax-efficient options like the provident fund, insurance policies and long-term equity-oriented mutual funds to help you defer tax for years, even decades.
5. Collating your investments
· Taken together, the investment portfolio for your child becomes a mix of short-, medium- and long-term products.
· Each option has something to offer and some financial goal to achieve.
· Fixed deposits offer safety and assured returns, but won’t be able to beat inflation.
· Mutual funds offer high growth, but carry a risk and don’t offer any insurance cover.
· Child insurance plans offer an insurance cover and grow the wealth, but levy high charges.
· Gold helps to fight inflation, but does not offer diversification.