‘Financial Planning For Indian Children’ is trying to introduce the most simple and disciplined approaches on portfolio creation to meet any future financial goals for your kids. The best part is, this article sharing my personal experience and success with the steps and ideas explained in it, to give a feel of tested and succeeded practices and steps.
Creating a child financial plan is really simple compare with one for adults. When creating a financial plan for children, parents are totally free from some of the best practices involved to financial planning foundations. It is, budgeting, creation of emergency funds, age and risk based asset allocation to portfolios or medical and insurance policies. Why I am saying a child financial planning is free because, most parents might have done their own personal financial planning by giving importance to their kids.
When going for child financial planning, the only requirement is to identify and create a well, fail proof, investments portfolio. This article specifically focusing to this area by introducing my model child investments portfolio with some of the well known, disciplined investment approaches and possible instruments to achieve the financial goals for log run.
A major point to remember when planning for child portfolio is, it should plan for long term. Start investing for your kid immediately after she or he born with a focus of 18 years. Long term investments on right mix of investment products are always a good idea to meet all your kids future financial goals.
Secondly, equities are naturally the best option to invest for long term because of its capacity to generate dream returns. When investing for kids, remember to have enough equity exposure to the child investments portfolio due to the reason mentioned in previous line.
To protect and balance the child portfolio, always add best available debt instruments with enough weight to the portfolio.
Below are some of my practices followed when starts creating child investments portfolio:
1. Mutual Funds – Start investing a or two best large cap mutual funds immediately after your first child born. Follow a disciplined investment approach by utilizing the Systematic Investment Plan method to invest minimum amounts with both funds in each months. Large cap generally have a portfolio of most prominent companies in India and would be able protect your kids money from huge volatilities in the stock markets. Naturally the prominent companies are able to produce handsome returns in the long run.
Personally, I am using the SIP method to invest Rs.1,000 in each month with DSPBR Top 100 equities and Birla Sunlife Front line equity. This SIP have done to go for next 12 years. – To add a debt instrument as a part of my kids portfolio, I have chosen most trusted compounded interest generator PPF account. I am adding Rs. 1,000 in each month to this PPF account.
To concrete my selection, below are some of the most important facilities I am receiving from this account:
1. Tax benefit on source and return – PPF is the only one investment instrument in India providing tax benifit to all the money dealing with it.
2. PPF has ability to grow my money through the magic of compounding. Remember the word of Albert Einstein, once he said “Compounding is the 8th wonder in this world”
3. PPF protect your money through direct guarantee from India Government.
4. If required, I can apply for a loan immediately after the completion of third year with PPF account.
5. PPF has the facility to withdraw your money partially, after the sixth year.
6. PPF account also has the facility to extend your present period of 15 to another 5 years if required.
If PPF has all the above facilities, why should I go behind any bank to add my money for getting low interest rates? I am sure, adding 1000 each per month for next 15 year will be enough to meet the higher education requirements or any other important financial goal of my kids when she reach to the age of 20.
3. Direct investments – A person who well versed with equity investments can buy shares on behalf of kids. Identification of the right and best company and price to buy their stocks have importance in it. Yes, I am doing this using the following methods:
I have opened a trading account for my kid and linked it to a bank account. Each and every month, I am transferring some fixed as well as surplus amount to this account to build enough money to buy shares. I have a good list of prominent companies and yes, able to identify the right price of each companies to buy. When it is reaching to the price I have set to buy, I never delayed to purchase number or stocks using the money in the account, I have accumulated from long time.
Revisit later to read all of my forthcoming article series on ‘best Indian companies to invest in’, specifically suitable for direct equity investments for kids.
4. Teach your kids about money and build corpus for buy shares – You can open a bank savings account specifically for your kids. Remember, it should be the ordinary one and not the kids specific account. Kids specific accounts are top flop in India. Present her a piggy bank to collect coins. Teach her about money and the savings requirements. Start this immediately after your kid reaching to the age of 2. Whenever she filled her piggy bank, put it to her account and once after she have enough money in the account, go for NSC or buy some fantastic shares in here name using the 3rd option I have mentioned above. Through this, she will get the money saving habit and later an idea of investing for successful future.
Optional yes strictly optional :
5. Child ULIPs – Yes this is an option for kids investments. Even though, I don’t have one because, I am not personally interested to ULIP products. Prefer this if parents doesn’t have sufficient insurance. One could go for child unit linked insurance plan with maximum life coverage and rider option like premium waiver etc. Remember to select equity funds if you are going for child ULIPs. Always compare all the available child ULIP’s and select a best from it on the performance, cost and features.
There are numerous investment methods available to create better child investments portfolios. Even though, I prefer to go with simple, manageable methods. Small is always beautiful and manageable. I have already realized the success of my initiative by investing in a disciplined manner.
I know most of you might have better idea than this or idea to magnify above methods. Share it frequently to help others and update myself. Contact me once if you have any queries on anything I have mentioned in this article.