The moment the child is born, your responsibilities become ten times of the previous situation because being a responsible parent, you need to protect your child from every possible risk and safeguard his/her future as well. In that case, you need to start investing in your child from the very moment of his/her birth. Many parents start this investment afterward or when the child reaches a certain age. In that scenario, the parents may face hurdles in creating the economic corpus for their child.
For fruitful investment, you need to keep in mind certain factors such as your child’s educational goal, the aspect of marriage, the future dream that you have for your child, your economic condition, future inflation, etc. After evaluating all these parameters, you can only go for the investment schemes. Any rash decision may lead to you financial crisis and future complexities that may create a problem for your child. Therefore, to ease your confusion, here, in this article, we are going to talk about the five best investment options that can help you to take the final decision to protect your child’s future.
Importance of Long-Term Investment for Your Child
If you are still wondering why it is important to invest in your child on a long-term basis, here are the mentions to clarify your doubts.
- Long-term investments will help you to build a financial corpus for your child.
- Your child might not need the money right now, but in the future, he/she will need the amount to fulfill his/her dreams.
- If you meet any unfortunate event, your child will have financial support through these investments. In fact, these investments will take care of his/her needs even when you are not around.
- It helps to meet the educational goals of your child.
- If you are worried about the expenses of your child’s marriage, these investments will be there to support you.
- If your child faces any health issues, your investment for him/her will help you to offer him/her the best medical facilities.
- It will also help your child battle against future inflation.
- Apart from these, with the benefits of these investments, your child can fulfill his/her dreams in the future smoothly. At that time, he/she does not have to be dependent on you, and you will also have financial relief.
Why Should You Start Investing Early For Your Child?
Here is an example that will explain why you should start investing as early as possible. Suppose Mr. Sharma started investing when his daughter, Akriti reached the age of 12 years. After 6 years, Akriti will be ready for her higher education. The average cost of a graduation course in a reputed college in India is around Rs. 5 lakhs. Keeping in mind the current inflation rate of India (6.73%), it can be said that after 6 years, the cost of the same course will be approximately Rs. 7.3 lakhs. Therefore, Mr. Sharma needs to save around Rs. 1 lakh every year to reach that goal. Now, in India, for a middle-class family, it is not easy to do so as it might seem to be while there are other expenses as well. But, if Mr. Sharma starts investing when Akriti is 1 year old, then he would require to save Rs. 40,555 per year instead of Rs. 1 lakh. That sums up that he needs to save only Rs. 3379 per month, which should not be a big deal for him. By saving early and investing early, Mr. Sharma would have had better and more expensive avenues opened for his daughter and it would have certainly created a great deal of financial corpus to secure his daughter’s future.
List of 5 Long Term Investment Options for Your Child
In India, there are several options in which you can invest your hard-earned money to secure the future of the child. Among these, the best five options are picked and discussed for your understanding. Have a look at the mentions.
1. Child Insurance Plans
Several insurance companies in India have come up with dedicated child insurance plans which are designed especially for children keeping in mind their requirements. This is the best long term investment option for your child as it is a combination of insurance and investment to ensure a secured and protected future for your child, even if you are not around. In the case of the unfortunate demise of the insured person, a lump sum amount is given to the child, and all the future premiums are waived off on behalf of the company. not only that but also, the insurer will keep on investing a certain portion of money on behalf of the policyholder. The child is entitled to receive the amount at specific intervals according to the terms and conditions of the policy. This is a power-packed investment for your child that eradicates all the financial constraints related to the child.
2. Gold ETF/Funds
Gold is considered to be a valuable asset for families. But rather than buying gold physically, you can invest in gold funds or ETFs, which are basically mutual fund units and can be traded electronically in the stock market. It is also called paper gold. These can be sold or bought like mutual funds through a Demat Account by a depository. For this type of gold, you do not require a locker, and they are also devoid of theft risks. It offers better liquidity and takes care of the issue of purity, high-making charges, etc.
3. Term and Mutual Funds
Most financial advisers advise going for this type of long term investment for your child as it tends to leave you a higher corpus, and you can also reap the maximum benefits through this option. Term and mutual funds come with dual benefits, namely protection and investment, which have made this option preferable. In the long run, stocks and investments in mutual funds generate very good returns over a more extended period, ranging from 12% to 16% returns. Moreover, there are multiple mutual funds to choose from according to your convenience, such as small-cap, mid-cap, large-cap, debt funds, etc. however, both the mutual and term plan are exposed to market risks that have to be borne by the insured person. But it is extremely transparent, and one can easily exit from it.
4. Public Provident Fund or Debt Fund or Fixed Deposit (FD)
It is one of the most popular investment schemes for parents for their children. Mostly because of its tax saving capability and availability, which means that this long term investment scheme can easily be opened in any of the branches of post offices and banks. Whereas EPF (Employee Provident Fund) can only be opened by the salaried class, PPF can be opened by any person. The interest rate of PPF is market linked and one can invest up to Rs. 1 lakh per year. It matures in 15 years, but you can extend the tenure in blocks of 5 years after maturity. The total amount invested in PPF is eligible for deduction under Section 80C of the Income Tax Act, 1961, up to a maximum limit of Rs 1.5 lakh in a financial year.
5. Stock Market and ETFs
The stock market is a highly risky affair. But if you can take risks, it can be one of the best investments for your child as it has the capability to give you the highest return over the period of time among all the investment options. It is a type of liquid investment. ETFs function more or less like the stock market. It holds assets like stocks, commodities, gold, or bonds close to their net set values over the course of the trading day. However, before investing in the stock market and ETFs, you need to assess your risk-taking capability.
What All To Check Before Investing In a Long-term Investment Option For a Child?
Before opting for an investment option for the future of your child, you need to keep in mind certain factors. It would be wise if you invest your hard-earned money only after evaluating the following parameters.
Age – When you are starting to invest, at that point, the age of your child is important for consideration. It has been already explained that the earlier you start to invest, the more corpus you tend to build. But, if you have started to invest when your child is already 12 years of age or more than that, you need to look for the option which can give you the maximum returns. At that point, if you opt for the safer schemes, you might not be able to reap the maximum benefits.
Understand your financial condition – Certain investment options like the stock market and ETFs are prone to high market risks. In order to get maximum benefits, if you invest in this type of scheme and lose money or suffer a loss, it may create a heavy financial burden on you, and you may not survive. So, understand your economic capacity in a proper way, and then only invest.
Type of scheme – It is needless to say that the type of scheme you will choose, you can get results according to that only. Understand the investment options well; inspect the market condition and conduct thorough research. If necessary, take the help of an economic advisor. But, do not make any rash decisions. Otherwise, your money will get wasted.
Your requirements – At first, know the purposes of your investment. It is certainly for your child, but what specifically the purpose is. If it is for educational purposes, you need the corpus earlier than the person who is investing for the marital expenses. If your purpose is an overall, comprehensive one, then plan your investment accordingly so that your child will not fall short of money in the future.
Risk taking capability – For the market linked schemes, the investment risks have to be borne by the depository only. In order to get higher returns, you take too many risks, which is way out of your league, and you may fall into financial troubles. And, you may not revive your financial condition ever, again. In that case, instead of creating a corpus for your child, you will become a burden for him/her. So, assess your risk-taking capability wisely, and only then select the desired scheme for yourself.
If you want a really good amount to save for your child’s future, it would be advisable that, alongside investing in a scheme, do open a PPF account for your child. Most importantly, do not stop saving no matter what happens. But always keep a check on the market condition. Keep your eyes open and invest wisely. Do not fall into someone’s provocations; check the factors and parameters properly; trust your guts realistically, and invest accordingly.