Unsurprisingly, every parent wants the best investment plan for their child. They want them to have the best education, give them the best nutrition and hope they get to lead a comfortable lifestyle. To fulfil these dreams, most parents hope to find the best investment plan for their child's future.
Finding the best investment plan for children can be like buying clothes for them. In their growing years, you can always search for a bigger size of clothes. Similarly, your investments for them must also be reviewed and rebalanced periodically. It can ensure that your investments can fit their goals well.
Let's find out how to choose the best investment for kids. If you answer the following questions, it can help you make informed investment decisions.
Yes, you are investing for your children, but what are your goals from these investments? Is your plan to get your children into a good college? Or, are you investing in sending them abroad for their professional studies? Or maybe you're thinking of a future wedding?
Your reason to invest or financial goals are essential to investment planning. Different goals can have additional financial requirements. Furthermore, they can require different tenures for fulfilment and thus different risk appetites. Therefore, you need to list down the reasons you want to start investing in the first place.
While listing these financial goals, you can ensure they are specific, measurable, achievable, realistic, and time-bound. Another important aspect to consider is inflation.
The value of your goals increases with time. The value of money declines with time due to inflation. Therefore, you can consider the changes inflation can make to your goal value in future while making these goals.
Based on your children's future wishlist, you can form financial goals and separate them into short-term, medium-term, and long-term.
With every tenure, your risk appetite can change. For example, if your child's goals are short-term, like taking them for a trip to Disneyland, then you might have a horizon of up to three years and can look for investments like debt mutual funds. Or you can save for these goals in short-term deposits like Jars in your Fi Money account. All you need to do is create a Jar named 'Disneyland Trip' and start filling it bit by bit with your savings. As Jars have a max duration of 1 year, at the end of every year, open a new Jar & repeat!
Some of the medium-term goals you might have are your children's higher education. For these, you can take a little more risk as you have a horizon of up to five years. You can look for investments that are a mix of equity and debt for these goals.
Lastly, for long-term goals like your kid's marriage, you might have a lot of time in hand. Therefore, your risk appetite for them also can be higher. If that's true for you, investments that can offer higher potential returns, such as equity and equity-based investments, can be an option.
It is crucial to remember that your risk appetite also depends on your age group, number of dependants in your family, geographical location, income level and health profile.
An investment plan based on your financial goals and risk appetite can be the best investment plan for a child's future.
So, you have made your investments, and now it's time to invest for your goals. How would you like to redeem them?
Yes, redemptions can be an essential aspect of financial planning. Instruments like mutual funds allow you to redeem systematically through their Systematic Withdrawal Plans (SWPs). Here, you can select either units or an amount you wish to redeem every month from your corpus.
For example, if your goal was to cover the monthly expenses of your child's education at a premier institute outside India. You might need a certain monthly amount to pay for your kid's rent and living expenses for this goal. So, a systematic withdrawal option can be better. Investments other than mutual funds might not have this redemption facility.
You might want to withdraw the entire amount at once for other goals like your children's marriage. Here, a complete redemption of investments can be considered. Therefore, it is crucial to consider your redemption needs while making an investment plan for your children.
If your child's goals are long-term, you can combine them with your tax-saving goal.
You might want to manage taxes if your salary exceeds the tax-free slab. You might want to invest in tax-free instruments like PPF (Public Provident Fund), Five-year Fixed Deposits, National Savings Certificate (NSC) or Equity Linked Savings Scheme (ELSS). These investments can be better for your long-term goals since some have a longer maturity, while others have high-risk equity investments.
It can be better to stay invested for long if you plan to invest in ELSS. Or, if you are investing in other instruments, it can be better to keep your goal tenure in sync with their maturity periods. It can help you hit two birds with one stone, i.e. your tax planning and your child's goals.
As your kids grow, their goals and subsequent financial needs will increase. Therefore, consider reviewing your investment plans for your children's goals from time to time.
A registered investment advisor can help you with this activity. They can help you make bias-free investment decisions that can stand the test of time. You, too, can keep yourselves updated about investments. The Fi Money app offers a host of in-app research material on mutual funds to help you grasp almost all the financial nuances.
Our children are dear to us, and so are their goals. To achieve these financial goals, make sure you are free from biases and are realistic/ achievable. It is important to consider aspects like the risk profile of investments and your risk appetite. This can ensure that you meet your goals on time and can fulfil your children's dreams. An investment plan that can help you reach goals on time is the best investment for children.
You can have various short-term, medium-term and long-term goals for your children. You can invest in any of these goals with a suitable investment plan. Also, different investments have different risk and return profiles. Therefore, you can make various investments based on your child's specific goals and form different corpuses for them.
There is no rule for what will form the best investment for anything. This is also true for investing for your children's future. An investment plan that considers your goal tenure and risk appetite can be the best for you.
Have you decided on an investment? Is it a mutual fund? If yes, you can invest them securely in one of the many zero-commission funds listed on Fi Money. Complete your bank mandate and set your SIP date and amount using FIT rules.
One of the best ways to invest in your child’s future is by making an effective financial plan for their goals.
You can make a bias-free financial plan based on your risk appetite and goals. You can check your goal tenure and match them with your risk appetite and risk profile of different investments. The one that can suit your needs better can be the best to reach your goals. Therefore, investment planning for your kid’s future is about yourself and your goals — like any other financial planning.
