Three steps to secure your child's financial future

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While making financial plans, young couples are eager to start saving for their children's future and this is often on their top priority list. They want to be ready when their child will need financial assistance to purse expensive higher study courses. With a little bit of planning they can secure their child's future with the following three step process.
  • Investment Planning:
    Step one of the process involves knowing firstly how much you will need to save and secondly which instruments are right.

    How much to save - Lets say an engineering degree will cost approx Rs.10 lakhs (including cost of tuition, books etc) while an Masters abroad can cost another 20-25 lakhs today. A similar course, 15 years from now, at a 10 % rate of inflation will cost Rs.41 lakhs and Rs. 83 lakhs respectively. Use this calculator given below to find out how much you will need to save for your child's future.

    Download Calculator [xls].

    Choice of investment vehicle - It is a known fact that cost of education has gone up by a faster rate than general inflation and hence you need to invest in inflation hedged assets ,preferably equity. Simply because a plan is called a child benefit plan, doesn't make it the best plan for your child's future. Consult a financial planner and like in any other investment choice, choose the most cost effective investment option. My general recommendation to parents is that a SIP in a regular balanced fund or in a mix of debt and equity will be adequate .Avoid insurance products and debt heavy products.

    A reminder - Investment planning for children should always be priority number two on your goal list coming after you have planned your own retirement, medical fund etc. There always is the option of taking education loans, an alternate source of funding for education that is not available for retirement needs. Also your child may take up career choices that do not require all the outlay you planned for .Contrary to this retirement is a definite and known event and resources required will not vary significantly from your financial plan.
  • Risk cover:
    Young parents either ignore the need of covering their child's future with insurance or end by buying expensive child insurance policies that do not work best for them. Cover your life for a sum equivalent to current costs of higher education with a simple term cover. Insurance should also include medical, disability and critical illness covers. This will ensure that at no point will you have to use your child's fund for an unexpected contingency.
  • Estate Planning:
    Today families no longer live jointly and common meeting grounds are few and far in between. In the tragic event of loss of both parents, a child needs a caretaker and guardians to not only manage his parent's estate, but also to look after his well being till he/she attains majority. A close family member, preferably a sibling or close family friend should be appointed guardian of your child in your will. You must also and seek their consent for appointment as guardians to your children. Such appointed guardian will be the custodian of your wealth and caretaker of your child/children till they attain 18 years of age.

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