Future proofing: How to design an investment blueprint for your child

Updated: February 8, 2019 7:32 AM

Break up the goals into short, medium and long-term, and make your investment accordingly

financial planning, short term goals, ELSS, Nifty, mutual fund, SIP route, Sukanya Samriddhi YojanaAnnual fees for her training, cost of cricket gear, etc., are short-term goals, ones that occur every year on a regular basis.

Dhananjay Singh

As parents, you always strive to provide the best to your kids. But some expenses in life demand much more than that. The first step in planning your finances is to prioritise and know where you stand currently, in terms of finances. As an earning member, you know you are accustomed to a certain standard of living. The onus of working out the numbers to make space for your daughter’s dream is on you. You can increase the investible surplus in two ways: either increase your income, or reduce your existing expenses.

If your daughter wants to become a cricketer, she should have the resources to excel. But for that, you will need to put her through the best college or school, with the best academy, to give her the required launching pad. She would also need a cricketing gear, to begin with, won’t she?

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Short-term goals (1-5 years)

Annual fees for her training, cost of cricket gear, etc., are short-term goals, ones that occur every year on a regular basis. For such expenses, short-term funds like liquid funds and short-term debt funds are ideal. Such funds will allow you to save for recurring expenses while allowing you to earn additional returns as well. Returns earned on such funds are generally high.

These funds have high liquidity, i.e., they can easily be converted to money and provide fair returns. They usually yield 7-7.5%, which is better than most traditional financial instruments. And additionally, come with the benefit of being tax-free! You can choose to opt for these in order to manage your short term goals.

Mid-term goals (5-10 years)

These are trips, excursions, training camps, etc. For your daughter to achieve her long-term goals, it is important to have sound financial backing. These are also the times when you need to accelerate the process of creating the corpus. Investing in any medium-term equity fund or Equity Linked Savings Scheme Funds (ELSS) is a suitable idea. You could put money into the medium-term fund, where you can expect 8.5% to 9 % returns annually.

Long-term goals (10 years-plus)

These goals are yet to be realised and are way away in the future, but you need to start investing for them early on. This is because they require a huge corpus of money to be fulfilled. Begin investing in Index Funds, which replicate the market performance as reflected on major indices like Nifty( NSE) or Sensex(BSE). They are safe bets with guaranteed returns. Directly invest in an equity-based mutual fund, for they are known to generate an annual return of 13-15% per annum.

Again, depending upon your young one’s requirements, college fees, etc., you can opt for hybrid funds. Systematic Investment Plan (SIP) route is the most preferred option for the same.

Apart from educational and career goals, we also dream of their happy marriages and families. And for the dads who wish to make the day special for their daughters, you can start small today with Sukanya Samriddhi Yojana (SSY). It comes with a maximum tax benefit of Rs 1.5 lakh under Section 80C of I-T Act. Further, the interest accrued and maturity amount is exempt from tax. For SSY, the age of your girl child should not be over 10 years. The minimum annual investment is Rs 250. You are required to make deposits every year till the completion of 15 years from the date of opening of the account. Between the 15th year and 21st year, you don’t need to make any deposits. However, you will be earning interest on the earlier deposits made at a rate of 8.1% per annum.

Source: Tax Guru

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