I wish it had been a cakewalk to save money while spending it heartily, but in today's times, the outlet pipe seems to have a wider hole than the inlet one. Nothing seems enough, when it comes to saving for kids, so it's great to have an investment plan to lay back on at all crucial times.
For better investment management, it is better to have an amount, a strategy and a motive in place when we plan to invest to avoid any discrepancy later on.
Looking at the present inflation, we can calculate the amount required for child's education, marriage etc. in a few years from now. This would give us a fair idea of the amount we need to invest annually.
When looking for a money investment product, we should NOT compromise on the following points:
1. Safety of the money involved: The amount is mostly safe in a long term investment plan, but should not be overlooked in short term plans.
2. Good, assured returns: Our purpose of investment gets served only when we get assured returns.
3. Disciplined or automatic method of installment (in case of monthly investment): This leaves no scope for human flaws like forgetfulness, shortage of time etc.
4. Minimum tax liability: This is important for effective maturity amount, in long term investments which get bulky, with tax liabilities.
5. Minimum charges of investment: There is an annual management fee (AMF) and an ongoing fund charged by the fund manager. Careful calculation can get us value for money and a substantial sum is not lost in charges.
I have zeroed in on low risk ways with assured returns. You could try them out too!
1. Something that has worked well for me is a systematic investment plan (SIP) in mutual funds. Middle cap balanced mutual funds serve the best purpose as they are low on risk. An investment of Rs.1000/- in top performing mutual funds at an annual return of 13-15% can fetch a return of 5-6 lakhs in 15 years. The only drawback is the easy liquidity of mutual funds at any point which one should avoid unless the requirement is really urgent. It is very useful to meet higher education expenses.
2. Another low risk alternative is a recurring deposit. With an RoI of 9% at most banks, an investment of 1000/- per month, the RD can fetch 2 lakhs at the end of 10 years. It is up to us to decide the amount we wish to invest each month. It is a multipurpose form of investment and can be used for any major purchases.
3. If you are looking at a long term investment with a lock in period, PPF or Public Provident Fund is the best bet, with a lock-in period of 15 years. At an interest rate of 8.75% per annum, the maturity amount can be a decisive factor for your child's education, marriage etc simultaneously saving tax.
4. National saving certificates issued by the post office are known for child investments. They follow a set scheme of money growing to double the invested amount at the end of ten years, at a RoI of 8.9%. For example, if you invest Rs. 100,000/- every year for 10 years, you would get approximately Rs. 2,34,000/- starting the eleventh year, for the next ten years. You can also claim tax benefits under section 80C. It is again a long term investment serving various purposes.
I hope this serves as a ready reference for you to invest for your child's future. You could implement a combination of one or more methods to customize the best investment plan for your child.
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