FUTURE PLANNING FOR YOUR CHILDREN – THE WHYs AND HOWs
As human beings, there are hardly any stronger aspirations than providing the best of everything for your children. But for every dream to be realised, we have to cross the bridge of multiple realities. As a parent, the most obvious of the dream would be to plan for your children in such a way that all their future requirements are properly taken care of and there is no running around at the time when the actual requirement arises.
The purpose of Children’s Future Planning is to create a corpus for foreseeable expenditures such as those on higher education and wedding, and to provide for an adequate security cover during their growing years.
Like most parents, you might be saving regularly to ensure a safe tomorrow for your child. However, savings alone is no longer enough. For ensuring adequate funding of your child’s education, you, as a parent, need to do two things:-
- Invest appropriate amount systematically and at regular intervals.
- Provide for a financial security blanket to cover any eventuality.
In current times signified by fast up and faster down economic cycles (a lot of uncertainty and volatility; food prices move up and down after a specific time period; the same is true of stock markets, prices of gold, copper, aluminium etc), it is very well possible that you, as parents, are caught on the wrong foot sooner rather than later. As the saying goes ‘Time and Tide waits for none”, very soon parents of young children would realise that they are looking at times when a particular need of their children is staring them in the face and they are found wanting in terms of how to tackle that need.
Higher education and marriage
Two needs which need maximum attention and planning from parents (especially modern day parents) are higher education and marriage. Within no time, parents realise that their tiny tots have grown up and it’s time for them to decide future course of their life in terms of profession they want to take. Funding for your children’s education and wedding is one of the most valuable gifts you can give them and it is possible for you to do it in the most uncompromising way. Look at the figures below to get an idea of what could be the expenses like when you start to plan:
Currently the average cost of professional courses like Bachelor’s in Engineering in India in a Govt-funded college is around Rs 50,000 per year (this figure may differ from college to college and from one state to another). Add to that other expenses like tuition fees and miscellaneous expenses and the cost per year could very easily be around Rs 100,000. It could be upto Rs 2.5 Lakhs a year if the child stays away in another city for this education. 10 years down the line, this figure might well be Rs 5.5 lakhs per year due to inflation (considered at a reasonable 8% per year) and it could be about Rs 8.0 Lakhs per year 15 years later. If the college is private-funded, multiply the figure by 3-4 times, and if you are more ambitious and are looking at any of the world’s top universities, further multiply the figure by 2-3 times more!! And this is the cost of one year of education out of the 4-5 years’ total education.
The other event that assumes equal, if not more, importance is the wedding of your children. A back of the envelope calculation reveals that monetary requirement for wedding will certainly not be less than what you may need for higher education. In fact, a normal, dowry-less marriage for a daughter today would cost Rs 20 Lakhs while for the son too, it would be Rs 6 Lakhs. 10 years down the line, these figures become 43 lakhs and 13 lakhs respectively.
Don’t get scared by these numbers
The purpose of projecting these exorbitant numbers is not to scare you but to reinforce the point that once you start your family, the planning for your children has to start soon enough. With things changing at a rapid pace around us, these numbers are bound to move only in one direction, and that is, northwards. The overall figure may seem intimidating or out of reach at this stage but with careful planning, early savings along with realistic and practical investment approach, it doesn’t need to be that difficult to achieve.
Starting early and consistency in savings are the two key factors in achieving your child’s successful future planning.
How to achieve the objective
The best way to start is with a mix of savings in debt products (like National Savings Certificate (NSC) and Provident Funds like EPF, Company PF, DSOPF, PPF etc) and investments in mutual funds and equity markets.
While the former will give you assured, though low, returns that will multiply every year, the latter will balance it out with a possibility of high growth. The first strategy will help you reduce your risks and the second will put you at higher risks but with a probability of higher returns. Government bonds and instruments generally give around 8% returns per annum while the history of Indian stock market has shown that returns are in the range of 12-15 % each year over a period 10-15 years. This mix of savings and investments gives a reasonable degree of safety (capital protection) and also enables you to take decent risks by investing other half in higher-risk-higher-returns equity class.
Regardless of the method you choose, saving for your child’s education and wedding is like any other investment.The sooner you sow these seeds of savings and investments, better are the chances of your money growing into a big enough tree to provide for the future needs of your children.
I remember once chatting with a father of two little girls. When he spoke of his daughters, his eyes lit up – like most dads. He had just one goal in mind: he wanted his daughters to get the best education possible. So besides his retirement planning and repaying his home loan, he was also saving for their future education. Six years ago, he began to invest every month in a diversified mutual fund for his daughters. He began with an amount as low as Rs 1000 a month and kept increasing it. Today, he invests Rs 7,500 in each of his daughters’ names every month. Though both are still in school, each girl already has Rs 7,00,000 to her name.
How did he do this? Through a Systematic Investment Plan (SIP) in a mutual fund.
Mix ‘n’ match
Don’t just pick up one Investment Avenue. Each have their advantages and risk profiles. An investment in a diversified equity fund will give you great growth but there is a risk it may not perform well too. The debt products and well-selected child plans from insurance companies will give you the stability required but at low rates of return. The child plans of mutual funds will give a lower risk than a diversified equity fund but a higher risk than debt products and insurance.
Ultimately, you will have to mix and match to ensure that you have comfortably invested to achieve the dreams that you have your child.
How to do it – Do You Need Assistance of Experts?
It is quite possible to do all the above on your own after undertaking some research through magazines, internet, going through company literature and talking to experts on the subjects. But such an important issue cannot be a one-time affair. Portfolios once made have to be constantly reviewed since goals may change or increase, market conditions may change slowly through normal evolution or drastic revolutions, a change in Government policy may totally change the rules of the game or competition in the marketplace may alter the dynamics totally, requiring a rehashing of the entire portfolio. Even if nothing so drastic takes place, market is an ever-evolving beast, and the winner is the one who keeps up with its evolution.
Only a financial expert, who understands the market forces and is into the thick of it can handle such delicate tasks. That expert should, in addition, understand your requirements and dreams, and the availability of your resources so that the financial solutions just right for you can be homed on to. HumFauji is such a specialised initiative which aims to fill this gap.
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