As parents, we want to give our children the best that the world has to offer- right from food, education, clothing, or entertainment. While the journey may be different for every parent, the focus to secure their child’s life remains consistent. Hence, among other things financial independence is the best gift you can give yourself and your child.
Here are some crucial investment decisions that will help you achieve financial goals in both the short and long run;
Prioritise Your Financial Goals
Make sure you identify your short-term and long-term goals before planning for them. For example, higher education or marriage are long-term goals while short term goals could be your child’s 18th birthday party/gift, a vacation abroad or even an expensive electronic gadget.
Accordingly, practice financial discipline and start saving a portion of your salary to meet these goals. For short-term goals, you can invest in a debt plan or a hybrid plan of a Mutual Fund. For long-term goals, you can invest in a Systematic Investment Plan (SIP) of an insurance company (ULIP) to meet financial goals for your children. Another option is investing in mutual funds. Through the power of compounding, it creates a good corpus for the investee by investing in equity-focused funds in the long run. Additionally, one can look at PPF investments to meet goals for higher education by investing early on.
Invest today for a better tomorrow
As a parent, you make sure you’re always there to provide for your children. However, life is unpredictable and given the fragility of human life in the current pandemic and even otherwise, it is wise to take a term insurance policy for financial security in case of a misfortune. The insurance amount depends on the income of the life assured and the financial needs of the family. Make sure to purchase cover for the loans that one has taken so that the children/heirs are not burdened.
Say yes to health insurance
The pandemic has also highlighted the importance of Health insurance. It is essential to have a basic healthcare cover for you and your loved ones. You can opt for a family floater plan which will provide coverage to everyone in the family. If faced with an illness, you will not have to worry about finances at the last minute.
Investment for your daughter
Parents of young daughters can invest in the Sukanya Samriddhi Yojana which is a small saving deposit scheme for girls. It also has a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income Tax Act. The interest accrued, and maturity amount is exempt from tax. This investment scheme is available for 2 daughters in a family with an investment of up to Rs 1.5 lakhs pa. for 15 years. The girl child should not be more than 10 years old at the time of opening the account.
The golden rule
Parents often invest in Gold for their children’s marriages- investment in the Sovereign Gold bonds is a better option than earns interest and there is no cost of storage. Unlike physical gold jewellery which requires locker rent charges in addition to other security issues and extra making charges. The sovereign gold bonds are available in Demat form and have tax benefits too.
Knowledge is power
The Pradhan Mantri Vidya Lakshmi Karyakram has been introduced to provide educational loans for students. An educational loan portal, Vidya Lakshmi, provides a single window for students to access information about various loan schemes offered by banks. They can submit applications for educational loans. The Department of Financial Services has made it mandatory for all banks to accept education loan applications only through the Vidya Lakshmi portal.
Saving in a piggy bank
One also needs to inculcate in the child the importance of saving and therefore incentivise the children towards it. Through saving a part of pocket money and investing the same – gives them lessons in wealth creation and investment. The same can be started with small amounts invested in the savings account/Fixed Deposit in the child’s name – he/she will also have a sense of pride in owning the account.
Additionally, by imbibing some of the following tips and tricks, you can ensure financial security for your child:
- Always keep aside at least 10% of your savings for your child’s needs (especially short-term ones- extra tuition/short trips etc) which will not upset your budget
- Keep separate investments for long and short-term purposes which should be monitored separately
- The long-term Fund should not be touched, and the contribution should be made regularly
- Do not get perturbed by market crashes/negative returns as the returns over a long period of time are usually attractive
- Always diversify your savings in different asset classes so that the risk is limited at the same time returns are hedged for inflation
- Encourage the children to save money and help them operate their bank accounts to make them financially aware. Getting introduced to financial savings at a young age will set the foundation for strong financial knowledge which will help them in their life ahead
by Dr Poonam Tandon, Chief Investment Officer, IndiaFirst Life