Are you a new parent? Here are 5 investment ideas for your child

Being a new parent is exciting, but at the same time it is exhausting too. As soon as the child arrives, parents start working upon every little detail to ensure the best future for him/her. In this planning, financial planning holds the top priority as expenses and child grow together.

With education getting expensive each passing day, planning for child's studies’ cost becomes important. For example, MBA education currently costs about Rs 10-20 lakhs. In the next 15 years, this may increase to 30-50 lakhs. This is just the fee. If we add living expenses, cost of books, etc. to this, it will inflate the costs by at least 20%. It is a similar story for other education too.

Also, after the baby your responsibilities will increase as he/she will be completely dependent on you. It will become important for you to secure financially his future, education, health care, and sustenance, even for an untoward situation when you are not around.

Here are some ways to plan for your child’s future through focused and smart investment.

1. Investing in mutual funds

Mutual funds are an ideal choice for wealth building. They offer a variety of choices for investors with different risk profiles and investment horizons. For example, there are 3 types of mutual funds: equity mutual funds, balanced mutual funds, and debt funds.

Equity-based funds are riskier because they invest in stocks. Balanced funds are moderately risky as they invest partly in equity and partly in debt. Debt funds have the lowest risk comparatively. On the positive side, the return depends on the risk associated with the assets, provided investors have the patience to ride through the ups and downs of the market. In the case of mutual funds, equity mutual funds have higher potential for returns in the long run. In the short term, the prices of underlying stocks fluctuate a lot. This can scare common investors. However, if the investor has patience and can wait for his time under the sun, the returns will be tremendous.

Parents looking for saving for higher education can think of investing in equity based mutual funds. There are mutual funds of various types under equity funds too. Choose a good fund by looking at its long term returns, expense ratio etc. and invest. Take the Systematic Investment Plan (SIP)route for investment as this is the best way to mitigate the fluctuations in the market.

2. Invest in real estate

India’s population is increasing. With population, the demand for land will only go up. This makes real estatean eminently attractive investment. While it is difficult to buy land in big towns, parents can think of investing in land tier-2 or tier-3 cities. It is easier to buy land in smaller cities as the ticket sizes will be lower and propensity to sell may be higher due to lack of traction in the property market.

3. Forging the future with Gold

Marriage is a big event for Indian families and no wedding is complete without the showcase of yellow metal. Gold symbolises prosperity in Indian culture. While Gold prices have been stagnant for quite a few years, the same cannot be said about the future. It is possible that Gold prices may go up in future. It is wiser to invest in Gold to ensure that you do not have to face higher prices in future.

You can invest in physical gold or demat gold (such as Gold ETF, Gold funds etc.). With dematGold,the additional benefit is the absence of the need for storage.

4. Protecting your tomorrow with a good insurance plan

While you invest in mutual funds, land, Gold, and other assets, do not forget to buy a good Insurance Plan, which will work even in your absence. Life is unpredictable. Hence, buying an insurance plan that covers the possible expenses of education, marriage, and living expenses in your absence is necessary. Term plans are the best bet for any eventuality. The premium is low and the sum assured high. However, term insurance does not pay anything if the insured survives beyond the maturity of the plan.

5. Children’s plans offered by various insurance companies

You can also look at children’s plans by various insurance firms. Understand the important features of these plans. Look at the expected returns and then decide.

Besides these, you can also open a Saving Bank Account for your child and deposit some amount from your income or the cash received as gifts. You can also invest in recurring deposits or long-term Fixed deposits for your child. Finally,when you invest for your child, look out for the risks associated with each product, the returns over the short and the long term, and the time horizon, and decide accordingly.

 

(The writer is CEO, BankBazaar.com)