You would always want to protect your child's future as a parent. When you become a parent, your entire world revolves around ensuring your child is okay. Parent always wants the best for their child, whether in terms of education, financial stability, or any other aspect of personality development.
Associated Chambers of Commerce of India (Assocham), a leading trade association, surveyed parents a few years ago, and the results revealed that nearly 65% of them spend more than half of their take-home pay on their children's education with extracurricular activities placing a significant financial strain on their family.
Making an investment plan is the best way to build a corpus for your children's future. A fixed amount must be set aside each month depending on the child's age and the anticipated requirement, such as a foreign university degree or marriage. There are also child investment plans that many parents contribute to.
This blog will look at the different investment options available to parents who want to create a corpus of Rs. 1 Crore for their children.
Creating a corpus for your children is a time-consuming and occasionally difficult process. To build this corpus, diligence and constant attention are needed. However, it will all be worth the effort once you reap the rewards.
The following are some of the best ways to develop your child's corpus:
Buying, managing, and renting out or selling Real Estate for profit are all aspects of Real Estate investing. A Real Estate entrepreneur or investor makes active or passive Real Estate investments. To increase the value of their assets, some investors actively develop, upgrade, or renovate real estate.
Real Estate continues to be India's preferred asset class in investing. Some of us may have even overheard our parents talking about their Real Estate investments. This is your chance to carry on their legacy. However, you will need to make a lump-sum investment of between 25 and 30 lakhs in a property with better long-term prospects if you want to prosper in the Real Estate business.
Even a reasonable 10% CAGR on such an investment would increase the value of your property to a little over Rs. 1 crore in just 15 years. If you decide to invest in a residential or commercial property, renting out the space would enable you to generate regular income while saving you the maintenance expenses related to Real Estate purchases.
Investing in Gold in various ways, including purchasing Gold jewelry, coins, bars, exchange-traded funds, funds, sovereign Gold bond schemes, etc., is possible. Even though there are occasions when Gold prices fall on the market, this typically doesn't last very long and permanently reverses itself.
Investing in Gold is a popular method of acquiring wealth. From when their children are born, Indian investors frequently begin amassing a collection of Gold jewelry for their children's weddings. You will need to invest nearly Rs. 30000 per month at a Gold price increase of 7-8% annually to reach a corpus of Rs. 1 crore in fifteen years.
On the market, there is an alternative. You are no longer required to purchase actual gold. ETFs that invest in Gold are also available. This lets you live out your dream while removing the possibility of extortion.
In India, Fixed Deposits are the most widely used form of investing. Since FDs are regarded as safe, offer guaranteed returns over time, and have flexible durations, they have long been associated with investing.
Everyone is aware of India's love for FDs. Investors have access to a variety of options under this heading. The possibilities include Kisan Vikas Patrika, national savings certificate, tax-free bonds, public provident fund, bank Fixed Deposit, bank recurring deposit, and tax saver Fixed Deposit, among others. You can earn a fixed interest rate in each investment vehicle, typically between 6 and 10%. The interest earned is taxable in most of these options (except PPF and tax-free bonds).
Let us assume that your average return is somewhere around 8%. In this case, your investment needs slightly less than Rs. 30,000 per month to reach Rs. 1 crore in 15 years. On the other hand, if your income is subject to a 30% tax rate, your adequate returns will be around 6%, necessitating an investment of slightly more than Rs. 35,000 per month for 15 years.
Insurance is a form of financial loss protection in which one party agrees to compensate another party in the event of a specific loss, damage, or injury in exchange for a fee. It is a type of risk management that is primarily used to mitigate the risk of a contingent or uncertain loss.
Endowment Plans in Insurance provide maturity benefits and are one of the most reliable options. Investments in Insurance give various advantages, such as life insurance, tax advantages under Section 80C, and maturity benefits that assist you in accumulating wealth over time. For example, if you invest Rs. 32,000, you will probably end up with a corpus of Rs. 1 crore.
This sum is calculated based on the typical 6-7% returns insurance plans offer. Do not forget that Insurance policies are not viable investment options; they are designed to cover risks. While 6.5% may seem like a tiny percentage, keep in mind that section 80C of the Income Tax Act gives you tax benefits for purchasing an Insurance policy.
A Mutual Fund is an investment vehicle professionally managed and collects money from several investors to buy securities.
Mutual Funds are one of the best investment options and a tried-and-true type, having successfully delivered high returns and enabling investors to build wealth aggressively. When investing in Mutual Funds, diversification is essential. As a result, your portfolio should have a good balance. Mid-cap, large-cap, diversified, and debt funds should ideally be included in a well-balanced mix in your Mutual Fund Portfolio.
An investor can easily decide to forego more traditional investment options and switch to Mutual Funds, particularly equity Mutual Funds, given the 15-year time horizon.
Additionally, a 15-year time frame is considered long, and businesses typically go through a complete cycle. Consequently, it makes sense to invest in high-return small-cap funds. Although small-cap funds carry a high level of risk, they frequently make up for it by offering high returns if an investor holds onto their investment for an extended period, such as 15 years. For example, you need to invest Rs 12,656 each month to amass a corpus of Rs 1 crore in 15 years, assuming an average return of 18%.
Stocks and shares of businesses are traded on the Equity Market. Either over the counter or at stock exchanges, equities are traded in Equity Markets. An Equity Market, a stock market, or a share market enables sellers and buyers to transact in equity or shares on the same platform.
Direct Equity Market investments are only advised if you have a firm grasp of finance and a keen sense for picking stocks. You can invest in stocks to get high returns from Equity Markets if you are a knowledgeable investor who comprehends various market cycles and can analyze businesses' financial statements together with a well-diversified portfolio with a good mix of growth stocks.
However, if you are unfamiliar with the idea or have consistently lost money when betting on stocks, it is time to try Mutual Funds and responsibly grow your money.
A long-term investment option is necessary for long-term planning. One such program that offers you additional security and government support is PPF. PPF accounts are also tax-efficient and give users an annual tax benefit of roughly Rs. 1.5 lakh.
You can invest a small amount steadily over a long period to build up a sizable corpus with long-term plans like PPF. You are permitted to maintain multiple PPF accounts. You can do this if you want to keep a separate account for your child's education or future.
Child Endowment Plans are a type of life Insurance policy that aids parents in setting aside funds for their children's future expenses. This savings program has tax advantages and was created primarily to assist parents in regularly contributing to their children's education, wedding, or other significant financial goals.
It is a wise investment choice. It would be wise to invest in one of these specially created Endowment Plans for the benefit of your ward. They operate similarly to standard Endowment Plans and can fully support your child's aspirations meant Plans and offer financial assistance in the event of the parent's unexpected demise. When choosing an endowment plan, the assured amount is something to keep in mind. Given that this is the sum your child will inherit upon your passing, it must be of significant value.
For example, making additional investments in the form of term insurance is one way to guarantee that this money is only used for your child's educational needs.
In conclusion, creating a corpus for your children's future is not a straightforward process. It might be necessary for you to reevaluate and review your goals.
You might even need to change your approach and behavior to manage your finances properly. However, be adaptable and innovative when making investments, and you will receive the reward once all of this commotion and hard work is over.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.