Are You on the Right Track with Investment Planning for Your Child's Future?

However, some parents still use traditional savings methods such as purchasing insurance policies or bonds in their children's names. Instead of money-back insurance, New-age parents have started buying child Unit Linked Insurance Plans (ULIPs). But is it a smart strategy? Emotional sales take place when investors take decisions based on their emotions, and many parents are attracted by emotional pitches; they end up buying expensive financial products.

The cost of education is rising every day, and as parents, you may be concerned about providing your children with the best education possible. It is critical for parents to save money in order to pay for their child's education. Most parents are concerned about saving for their child's future as school fees rise year after year. You must consider the costs of education, marriage, unforeseen medical concerns, and other expenses when planning for your child's future.

However, by planning ahead of time, you can ensure that your children do not have to give up on their dreams due to a shortage of funds. It's also crucial to remember that funding ambitious educational ambitions for the kids shouldn't put your personal financial stability at risk. But the reality is only a small percentage of parents plan for their child's education, with specific investments demarcated for the same. As a result, increasing aspirations and education costs are funded by borrowings and education loans.

One very difficult aspect of securing your child's education is choosing the most appropriate child investment plans. Most parents strive to provide a substantial financial cushion for their children, yet their resources may somehow be insufficient at the time of need. Making the appropriate investment selections at the right time is important when trying to build a solid financial backup for the child's future.

While there are a plethora of best investment plans dedicated to children available in the market, it is always recommended that you study and assess them carefully. Choose the investment option depending on your need and suitability.

Here are a few steps you may follow while investment planning for your child's future:

1. Determine and set your goal

To begin, make a list of specific goals, such as the child's desired education and its costs. Consider the time horizon when setting a goal. That way, you'll know when the funds are needed. The advantage of education planning is that you know exactly when money will be needed. You may be certain, for example, that you are saving for your daughter's MBA in 2035.

Goal-setting can help you figure out how much money you need to save each month, and budgeting will help you keep track of your finances. However, you must bear in mind that saving for your child's education does not have to mean cutting down on other aspects, such as healthcare and retirement.

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2. Calculate the amount required

The first step towards your goal would be to choose an approximate target value. However, if you intend to send your child abroad to study, the cost of living will increase, and the greater the cost of education, the more money you will need to save.

When determining the finances required in the future, you must account for the effects of inflation. Each year, inflation causes a considerable increase in the expense of education. In general, education costs rise faster than the rate of inflation. As a result, you should begin saving for your children's education as early as possible, taking into account the time element.

Instead of using current values, you'll have to establish estimations and plans based on future costs of education, marriage, and hospitalisation. The same is true for your investments; you must determine the future value of your investments in order to use them. These calculations will assist you in determining a target and the monthly savings required to achieve the objective. If your child wishes to study abroad, you must also consider exchange rate fluctuations.

3. Plan your investments wisely

Once you have calculated the target amount, it is time for planning and implementation. It's crucial to remember that a long-term investment strategy will help your youngster accumulate a sizable nest egg. The inflation quotient must be factored into your strategy for selecting the best investment plans for children.

Even when parents prepare for their children's future, they frequently underestimate the expense of future financial needs and fail to select the appropriate investment option. Equity mutual funds can be a viable alternative given the nature of returns and the time horizon required to plan for a child's future. When it comes to long-term plans, equity is the best asset class. There are some solution-oriented equity funds that are specifically built for the future of children, and their lock-in duration builds the habit of investing over a long period of time.

The SIP-based investment in mutual funds ensures that investors remain disciplined and their financial plan is on track as a predetermined amount is automatically deducted from their bank account over periodic intervals and invested in selected mutual fund schemes. During market corrections, SIP also averages unit costs, removing the need for timing investments. SIP enjoys the benefit of compounding, which helps in providing inflation-beaten returns.

The earlier you start investing and the longer you stay invested, the higher would be your potential returns from compounding. An investor can opt for Step-up SIP plan for their child's future by increasing their SIP amount as the child grows. As the financial goal gets closer, it is advisable to reduce your equity exposure to decrease the risk of unfavourable market movements.

Having a multi-asset investment approach for risk-averse investors could help tackle high inflation. Diversifying your investments across various asset classes provides a balance to your portfolio. Other financial instruments parents can consider are:

• One of the ideal investment options for child education is the public provident fund (PPF). However, you must begin investing early and consistently in order to develop a significant corpus.

• Several insurance firms provide products for children. When your child needs money to pursue further education, you can choose mature policies.

4. Maintain Financial discipline

One of the evergreen ways to successfully plan for your child's future is through disciplined savings. The importance of disciplined savings cannot be expressed enough. Regular savings lead to huge investments over a period of time and take you closer to your destination.

Financial discipline is one of the most critical factors to meet your long-term financial goals like children's education and weddings. It requires meticulous planning as well as a sustained approach to build a corpus, keeping in mind the nature and variety of expenses involved. Make sure that whichever investing option you choose is constant and regular.

Mutual Funds provide a brilliant option to address this through a Systematic Investment Plan (SIP). It instils financial discipline as well as the habit of regularly investing for your child's future. Another crucial part of SIP investing is to avoid being swayed by market noise and to stick to your plan.

To conclude...

Saving habits should be instilled in children from an early age. It is a good idea to teach youngsters the basics of financial planning and involve them in the process. You should make it a point to instil in your child the principles of saving and investing at the appropriate times. Not only will you teach them financial responsibility, but you will also teach them how to manage their money.

In order to inculcate good financial habits in children and teach them money management skills, it is important for the parents to be financially literate. Parents need to empower themselves with the weapon of financial knowledge to secure their child's future.

Financial literacy is a valuable life skill that helps you grasp the fundamentals of investing and financial planning. If you are financially knowledgeable, you will teach your children valuable financial lessons and secure their future. Financial literacy assists you to become a financial guardian for your family, especially for your children and make informed financial decisions for their future.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst