A lot goes into ensuring that your child leads a financially secure life. And the sooner you start, the better

Three years ago, when their daughter Anushree was born, Yogita and Pawan Rathi were overwhelmed with joy. Coming from an upper middleclass family, they wanted to give the very best they could for their daughter. Pawan wanted to plan and start early to ensure that he had a huge corpus for his daughter's education and marriage. When his financial planner told him that he would need to save a corpus of at least . 60 lakh to meet higher education needs, he could only stare at him in disbelief. However, it is the bitter truth. If you account for inflation, the realistic figure may be further beyond reach.

The idea behind this planning for the child's future is to invest money in such a way - to get optimal returns and ensure that the child gets the money no matter what the circumstances. So, how do you go about achieving these objectives?

The Expenses:

"With changing lifestyles, parents want to give the best to their child," says Anup Bhaiya, MD and CEO, Money Honey Financial Services. So, you may want to enrol your child for a skating or a badminton or a swimming class. In addition, s/he may want to learn the guitar or the violin. All these involve expenses which need to be provided for. Inflation is another monster which you have to deal with as it reduces your purchasing power. What you get for a rupee today, may cost you more tomorrow because of inflation. So due to rising inflation and the higher cost of living, these expenses are expected to keep rising.

The first goal is to get the child admitted to a school, followed by paying his or her school tuition fees and extracurricular activities. How-ever, the major expenses come later in life when the child starts planning for a professional course like engineering or medicine. "Expenses like regular education, tuition and coaching classes should be taken care of by your regular income. You should plan for goals like higher education, education abroad and marriage," says Vinay Taluja, executive vicepresident and product head-life insurance, Bajaj Capital.

At today's costs, you may have to cough up anywhere from . 5 lakh-25 lakh for an engineering or medicine course, depending on the college your child wishes to apply for. In case you plan a foreign education for your child, it could cost you around . 20-30 lakh. A wedding in a city like Mumbai could put you back by a minimum of . 10 lakh. With inflation, this amount is only expected to increase in the future. With the rising cost of education, it will be wise to assume an 8-10% inflation in the fees per annum. "While planning for the future, you have to take inflation into consideration which could be anywhere between 5-15%," says Ranjit Dani, a certified financial planner.

Start Early:

The earlier you start the better it is, since you have more time on your hand. Secondly, it gives you more time to alter the portfolio or make changes, if the need be. Take the case of a couple who started investing when the age of their child was five and another couple who began investing as soon as their child was just born. Assuming that both the children start their respective higher education at the age of 20, the first couple will have 15 years to reach their goal, while the second will have 20 years. A sum . 10,000 per month invested for 15 years, with a return of 12% per annum, will translate into . 50.46 lakh, while . 10,000 invested every month for 20 years at the same rate will grow to . 99.91 lakh. So, first things first - do not waste time.

Like any other type of financial planning even when you make a plan for your child, you must set a goal for yourself. You need to decide what you intend to plan for your child. Would you want him to become an engineer or a doctor? How many years are there for you before your child's education starts? Will s/he pursue the education in India or abroad? Since investment for education is time-bound , you would need those funds during a specific year. So, keep that in mind and act accordingly.

Investment Solutions:

As is the case with financial planning, where every individual has a different objective and different solution, so is the case with the education of your children. If you are well-off and already have the resources with you, then capital protection will be your most important goal. However, if you pay an EMI for your house and simultaneously want to plan for your children's higher education, you will have to go for a different set of products. There are various products amongst equity, debt and insurance which you can use to meet your end objectives. The choice also depends on your risk-taking ability. Since in most cases, you are building a corpus which you re-quire after a period of 15-20 years, experts advise equity investments through the systematic investment plan (SIP) route. Investments in SIPs can be done through your regular cash flows which come in through your salary or business income. "Many times in case of HNIs, they already have a corpus in place. In such a case, one is not chasing growth, and hence one could use debt to meet those objectives," says AV Srikanth, executive director, Anand Rathi Wealth Managers. Insurance is advised by planners to take care of any unwanted event were it to come up.

"If something happens to the parent, then insurance will come in handy, and will assure that the child's needs are met," says Taluja. "If you start early, we recommend a simple term insurance and SIPs through equity mutual funds," says Dani. For example, if the current cost of a medical course is . 15 lakh and you have 16 years to achieve that goal, then assuming an inflation of 9% per annum you will need . 59.55 lakh, 16 years from now. You can achieve that target by investing . 10,000 every month. Assuming a 12% return per annum from equities, you can reach that target in 16 years.

"For your child, you can invest in a money-back policy. For investors, it keeps things simple and ensures that you get the specified amount when the milestone is reached, which ensures peace of mind," says Bhaiya. He also recommends investment in children's schemes floated by mutual funds. Here, the child can withdraw the amount when he is an adult. "I recommend a child Ulip with a waiver of premium benefit. This ensures continuity of investment even if the parent is not around," adds Taluja. In the end, like any other plan, you need to review your child's plan at regular intervals. This will ensure that the direction is right and the goal can be achieved. So it's about time that you go ahead and plan for your child's future. This is the best gift you can give her or him.

SLOW AND STEADY

* Do not skip equity SIP instalments or your insurance premium if the market falls

* If you earn a lump sum through a bonus, save half of it to meet your goals like your child's education Review your financial plan regularly to ensure that it stays on track

* Create a separate contingency and emergency reserve. Do not dip into this corpus as far as possible If you reach your goals earlier due to higher returns from equity, consider shifting a part or the entire corpus to debt

Source: http://epaper.timesofindia.com/