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Thebestinvestmentforyourchild
September14,200615:37IST

Forallyouparents,yourchildisyourbundleofjoy,thesourceofallhappiness.Youwanttheverybestinlifeforyour

childintermsofeducationandmedicalfacilitiesandyouknowthatinordertoachievethat,youneedtostartplanning
early.
Asitis,qualityeducationisgettingexpensivebytheday.Yearslater,thingsareonlygoingtogetworse.Sothesooner
youstart,thebetteritis.
However,whatdoyoudo?Whicharetheproductsyoushouldturnto?Whatwillofferthebestadvantagetoyourchild,
andontheflipside,whatitisthatyoushouldavoid?
Thisarticletriestoaddressthesequestionsandmore.
Thekeyistostartearly.However,whenitcomestoactualinvesting,mostparentslookforinvestmentproductsthatare
actuallytermedas'Children'sPlans.'Thisinitselfisthemistake.Investmentproductsdonotcomewithan'AdultsOnly'
certificate.Whichmeansthatyoucanusepreciselythesameinvestmentsforyourchildthatyouuseforyourself.
ThinkPublicProvidentFund(PPF),RBIbonds,mutualfunds,PostOfficeinstrumentsand,ofcourse,pureequity(stocks).
Notethat'Children'sPlans'frominsurancecompanieshaven'tbeenmentionedintheabovelist,inspiteofthefactthatit
istheinsurancecompaniesthatofferthemaximumproductsinthiscategory.
There is a reason for this. Most children's insurance products are nothing but modified endowment or money back
policies.Thelabelischanged,theproductismoreorlessthesame.
Putting it differently: Naam badalne se kaam nahi badalta. For, all these policies suffer from the same limitations that
traditional endowment policies suffer from in terms of low returns and high costs. After deducting agent commissions
(whichareprettyhigh),mortalitypremiumandotheradministrativecosts,onlytheremainingmoneyisinvested.
Also,bonusesthatinsurancecompaniesdeclarearenotonacompoundedratebasis.
Thisneitherbenefitsthechildnortheparents.Plus,thinkaboutit,yourchilddoesnotneedinsurance.Theparentsare
notdependentonthechildfortheirstandardofliving.Sothedemiseofthechild,howsoeverdevastatingemotionallyon
thefamily,willnotmakeanydifferenceinthestandardofliving.
Consequently,mostendowmentormoneybackpolicies(whetherinyournameorthechild'sname)offeranextremely
low return over a long period of time. Nowadays, most such child plans offer insurance in the name of the parent
whichisfine,butcompromisingonthechild'sfutureisaprettyexpensivewaytobuyinsurance.
Ifyouneedinsurance,buyterminsurance.Allthemoneythatyouwouldsaveonaccountofthelowpremiumcanbe
investedforthelongtermforyourchild.
Whatyourchildneedsiscapitalgrowthasfastasissafelypossible.Nowadays,ULIPs(UnitLinkedInsurancePlans)
have also started being marketed as Children's Plans. Again, if it is a traditional ULIP or that of a Child Plan, it still
remainsanULIP.UnderstandtheexpensestructurewellbeforecommittingyourfundssomeULIPshaveaveryheavy
frontendexpensestructure.
EvenmutualfundsthatofferthesocalledChildren'sPlansarenothingbutliquidorbalancedfundswithahigherlockin
period.Thereisnopointininvestinginsuchplansexceptofcourselockinginyourfunds.
Whichbringsustothemootquestion:thenwhatisagoodinvestmentforachild?
OneoftheanswersisPPF.YesPPF,aninstrumentwhichisgenerallyconsideredtobe'AdultsOnly.'Considerthis:say,
20yearsfromnow,yourequirearoundRs2225lakh(Rs2.22.5million)foryourchild'shighereducation.AroundRs5
lakh(Rs500,000)needstobeearmarkedformarriage.Allthiscanbeverysimplycateredforbydoingthesimplething
ofinvestingRs70,000inyourchild'sPPFaccounteveryyear.
If you do this, 20 years from now, you will have an astounding amount of around Rs 32 lakh (Rs 3.2 million) at your
disposal,whichyoucanusefortheeducationandmarriageofyourchildandstillhavesomeleftover.Suchisthepower
ofcompoundingandselectingtherightplan.
Thestrategy
Most people mistake financial planning for the child to mean transferring capital in the child's name. This is neither
necessary nor enough. Your child is still a child and he or she doesn't have the capacity to make proper financial
decisions. So it is you who must make these on his or her behalf by making optimal use of the instruments at your
disposal.
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07/01/2015

ThebestinvestmentforyourchildRediff.com

Infact,itisprudentpracticetoinvestthefundsinyourownname,earmarkingthecapitalforthechild,asandwhenheor
shemayneeditinfuture.Thisway,youpreventanymisuseofthemoneybymisguidedimmaturechildren.
The only thing you need is discipline in keeping the earmarked funds invested over the time that your child attains
majority,sothatthepowerofcompoundingmakesthemoneygrowhealthily.
Theinstruments
Likementionedbefore,planninginvestmentsforthechilddoesnotmeanusinganythingnewthanwhatyouhavebeen
usingsofarforyourinvestments.However,youmaychooseaparticularinstrumentforyourownpersonalinvestment,it
neednotbethesameinthecaseofyourchild.
Forexample,sinceyourchilddoesnotrequirethefundsimmediately,themoneycangrowoveralongperiodoftime.
Whichmeansoneofthebestmodesofinvestmentisequity.
Historically,ithasbeenproventhatequityinvestmentshaveoutperformedanyotherassetclass.However,itcomeswith
associatedrisks.Thekeyisthatthechild'ssituationinlifeallowshim/hertoundertakethatrisk!Grabthisopportunitywith
bothhands.
Diversifiedequityfunds
Ouradviseisdon'tdabbleinthesharemarketonyourown.Also,never,never,listentoanyone'stips.That'sasurefire
wayoflosingmoney.Instead,allowprofessionalstodothehardworkforyou.Thisyoucandobyinvestingindiversified
equitymutualfundsofaqualitypedigree.
Theseareextremelyflexibleinstrumentsthatoffertheoptimummixofreturn,risk,liquidityandtaxefficiency.
Notforamomentarewesuggestingthatyouinvestallthemoneykeptasideforthekidsintheseinstruments.However,
everymonth,earmarkacertainsumtobeinvested.TheseinstrumentsalsoallowyoutoinvestaslittleasRs1,000.
Forthosewhorequireadisciplinedapproach,theSystematicInvestmentPlan(SIP)isavailable.Youcangivepostdated
cheques for six or twelve months and the investment would be automatically done on your behalf. There are several
otherbenefitstoanSIP,butspaceconstrainsdon'tallowadetaileddiscourse.
The point that your money is your child's money if you invest it well, it is your child who will benefit cannot be
emphasisedenough.
The bottom line? Investing for a child is no different than investing for yourself. The principles remain the same.
Remember,investmentsdonotcarryanAdultsOnlycertificate,justan'UnderPG'(ParentalGuidance)one.
ThewriterisDirectorofANShanbhagNRGroup,aMumbaibasedtaxandinvestmentadvisoryfirm.Hemaybe
reachedatsandeep.shanbhag@gmail.com
SandeepShanbhag

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