Raising children is no longer a child’s play — costs of education, marriage, healthcare, and so on, are all on an upswing. Help is at hand through meticulous financial planning and right investments.
These are tools that Ravi Kawatra (35), father of 3-year-old Navya plans to use. Kawatra works with a logistics firm, his wife Sakshi (31), is a homemaker. For Navya, Ravi has invested in a systematic investment plan along with an education plan with an insurance company to secure his daughter’s future.
“My daughter is young and I have started with a modest sum but I plan to subsequently enhance my investments into mutual funds for securing the financial needs of my daughter,” said Kawatra.
What should you do for your child? Experts say that mutual funds are the best way to invest for the financial needs of children going forward.
But before buying a fund, you need to calculate the cost of higher education (taking into account the rate of inflation) that would be when the child grows to that age and invest in an amount that can cover that figure. A Rs 6 lakh MBA today, for instance, will multiply to more than Rs 14 lakh in 15 years at an inflation rate of 6 per cent.
“Investments should start early taking the child’s financial requirement 10 years down the line,” said Surya Bhatia, a Delhi-based financial planner. “But it is equally important to reduce the equity exposure gradually. Reduce it to 50 per cent in the eight year, 30 per cent in ninth year and 10 per cent in the tenth year.”
Keeping separate ‘investment baskets’ for big financial goals such as higher education and marriage helps. A broad asset allocation for a 15-year growth plan would be to invest 70 per cent in equity funds, 20-25 per cent in small savings and 5-10 per cent in a gold exchange traded fund. Note, this allocation would vary based on the risk tolerance and capacity.
“If you put all the money in equity SIPs and at the time of maturity if the market touches its record low, you will lose the returns so diversify across asset classes,” said Jaideep Lunial, a financial planner.