How to do Investment plan for children
Last week I got couple of messages to write an article about the best investment plan for children. We all know that every parent has to plan for their children’s future. But I felt majority of the parents would see the security side of the children’s future, ignoring how well they can plan beyond security.
Why an investment plan is necessary for a child
Children Investment plan is necessary for child education or daughter marriage. However saving the money may not be sufficient. I hope every one agrees that ensuring that money grows faster along with security is important thing to consider before we look for investment options for children.
How parents are planning the investment plan for children now.
As per recent survey conducted by a news channel revealed that currently every parent is preferring to take an insurance policy for their child’s future. There are number of insurance policies from LIC, HDFC etc. which are offering good child insurance plans. However insurance plans are not investment plans. Insurance plans are only for security purpose. In case the parent does not survive, the child’s education or daughter marriage can be taken care without any problem.
How to do Investment plan for children
- Children Insurance plans: This should be a first step in investment plan for children. There are good insurance plans offered by LIC like Jeevan Anurag, Jeevan Kishore, Jeevan Ankur etc. There are private insurance companies which are also offering good insurance plans like HDFC SL Youngstar, HDFC Children plan etc., Consider the insurance plan only for security side and do not think insurance is like an investment plan.
- Investment in Debt mutual funds: Beyond insurance, I would prefer every parent to invest in mutual funds so that the money grows faster and there would be little downside comparing to direct investing in stocks. Investing in debt mutual funds would provide good returns comparing to investing in bank fixed deposits.
- Investment in Balanced mutual funds: Another option you can have for children investment plan is investing in balanced mutual funds. Balanced mutual fund invests 70%+ amount in fixed income securities and small portion in direct stock markets. Hence there would be capital protection and there is very little downside. However over long run, you can benefit from investing in balanced mutual funds.
- Invest in ULIP: There are several unit linked insurance plans which are insurance plan cum mutual fund where insurance company would allot mutual fund units and such investments would be made in direct stock market to some extent. However in earlier days of ULIP’s, there were huge expenses charged to ULIP’s holders. Check for ULIP’s which charge low expenses before you choose this as investment option.
- Investment in gold: Another good option for children investment plan is investment in gold. One of my friend is accumulating gold for her child’s future. Since this is a good safe investment option and investment in gold has given 22% annualized returns in the last 8 to 10 years, no doubt this is a good investment option for child’s future. However you need to decide on whether to invest in Gold ETF or in physical gold.
- Investment in Post office MIS schemes: Investing in post office MIS schemes is also another good option. Investment in Post office MIS scheme would provide good returns of 8% + comparing to 6% returns on investment in insurance plan.
- Investment in bonds: Investment in bonds or tax free bonds is also good option where your money is secured and you would get 8% + returns.
- Investment in PPF: Currently PPF is offering 8% + annualized returns. This would be a good investment option when bank rates are falling as it provides higher returns. PPF account can be opened when a child is born and since this account needs to be opened for 15 years, during the maturity the investment amount can be utilized for child's education.
- Investing in NSC: One of my ex-manager has a habit of investing in NSC every year. After 6 years, he re-invests the same without withdrawing the same. He has done this for almost 15 years until their children have grown and he needs to meet his children’s educational expenses. He started utilizing it when the child has started his college. I felt this is one good way of planning for child’s future.
- Investment in bank fixed deposits: Investment in bank fixed deposits like SBH double ka metha where your money would be doubled in 7 years is also a good investment option.
Conclusion: Let us not restrict by taking an insurance policy for children Investment plan. No doubt, Insurance is a first step. But beyond insurance there are other options also which you need to look at it. Invest in best investment plan for children and have a bright future for your child.
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