Planning - A Must to Fulfill Your Child's Education Goal

Planning for your child’s education is one of the vital goals for every parent. It also forms a significant part of your cash outflows. However, as compared to other monetary objectives, it is relatively simpler to arrange finances for kids’ learning since the duration is fixed.

At the same time, the cost of higher education is presently quite high and estimated to grow at 10-12 per cent annually ( ET Research 2014) . Parents need to effectively plan their child’s education to avoid a financial crisis later. Given below are some valuable guidelines:

Determine a specific time-period and amount:
Parent must set a date for achieving education goals of their children so that they are ready with the funds. It can be 6-7 years when your kid begins school or 21-22 in case of higher education. In addition, it is vital to establish the amount of money which would be needed to fulfil your child’s aspirations. Fee structure varies for different courses hence you should carry out proper research and then take steps for financial planning.

Start saving early:
Don’t begin thinking about funding your child’s education when he takes his first step. Commence the saving process the day your baby is born. Delays will result in smaller corpus whereas saving over a long period of time will help to accumulate greater amount plus the money will multiply too. Start early so that you don’t have to compromise on the course/institution and your child gets the best education.

Select an appropriate investment route:
Investing in the right tools is important to ensure your child’s education is not hampered. Go through the Child Education Plans offered by various companies and check if it meets your requirements. You can also invest certain amount in the mutual funds and the rest can be put into fixed deposits and tax-free bonds. Take the help of an advisor to develop an efficient investment plan for your kid’s future.

Consider other financial aid such as scholarships:
If your kid is brilliant in studies or extracurricular activities, then you can opt for financial assistance in the form studentship, internships or grant. Such assistance largely helps in planning finances.
To conclude, make sure you stick to the financial plan you have developed so that there is no roadblock in your child’s desire to pursue his preferred course. Review the plan on a yearly basis to ensure that it is going exactly as per your goal.

So this Children's Day, take the first step in safeguarding their future........... 

Let’s start investing !

Now that you have understood why investing is important, here’s how you can actually go about doing it in 3 simple steps:

Step 1: Be sure that the investments that you plan to make suit you:

Investments and risks: Some investments carry more risk than others. For instance, buying and selling stocks on a daily basis is considered risky while keeping your money in a bank fixed deposit or better still, government bonds is considered safe. There are other investments such as gold and real estate which fall somewhere in between.

People and risk: At the same time, there are some people who thrive on taking risks while others would prefer to avoid them. The level of risk which you are comfortable with may be determined by your circumstances. It is likely that people with greater accumulated wealth, fewer dependants, etc. are more open to taking risk. But that’s not necessarily true either. Some people are just natural risk takers while others naturally fear risk and still others are somewhere in between.

People, investments and risk: Ideally every investor should have some high risk and some low risk investments. This is because high risk investments typically offer a chance to gain higher returns while lower risk instruments offer moderate scope for returns but are more secure. Having a mix of both ensures that your money grows and has some stability as well. However, there is no ‘ideal’ mix of both that can be recommended for everyone. Your investment mix, also called your asset allocation in technical terms, should depend on how comfortable you are with risk or in technical terms, your risk taking ability.

Match-making: Irrespective of how much risk you are comfortable with, make sure that you have a mix of investments that you are comfortable with – no sleepless nights, fearing that you have taken on excessive risks and no restless feelings that your money is all too safe but not able to give you a chance to make good money. But having said that, there are some benchmark asset allocations that correspond to people with different risk taking abilities:

Step 2: Pick suitable investments within each asset class

There are two mainstream asset classes or types of investments – equity and debt.

Investing in equity - Investing in equity actually means that you have invested in a business which is being managed on a day-to-day basis by someone else. Accordingly, the returns that you can expect to receive will depend on how successful the company you have invested in is. If you choose good companies, you could benefit from profits and from an increase in your investment as the company grows in value. If, unfortunately, you choose a bad company, you could lose everything upto the amount that you have invested. So, how do you pick those winners? By doing your homework diligently – study potential companies and industries and how the economy is progressing. Alternatively, you could just invest in equity through a mutual fund. This way you pass on the chore of picking stocks to a professional fund manager who has a team of research analysts to support his decisions.

Investing in debt - Debt as an asset class includes investments which give you a fixed return. It is called debt because you are effectively lending your money to the government (in the case of government bonds) or a bank (in the case of bank deposits) or some other institution. As in the case of equity, you could invest directly in the debt instrument or you could invest in debt through a mutual fund.

1. Bank/company deposits, post office schemes and tax free bonds – When you investing directly in bank or company fixed deposits or in a post office savings scheme or in government or semi-government tax savings bonds, you are aware of the tenure of your investment (i.e., for how long you will be investing) and the rate of interest that you can expect, right from the time you make the investment.

2. Debt mutual funds – When you invest through a mutual fund, while you are still investing in secure, fixed income investments, there is a fund manager who tries to improve the returns on your investment. He does this by monitoring the markets for fixed income investments and making investment decisions in keeping with a stated objective. Another advantage of investing in debt through a mutual fund is that you gain access to some debt instruments

which you may not have been able to as an individual as the minimum investment limits are rather high. Being a fund that pools together the investments of many large and small investors, a mutual fund manages a large corpus of money and can invest in such instruments on your behalf.

Step 3: Make your investments!

This is perhaps the easiest step once you have short listed the investments that you plan to make. All it requires you to do is get your documents in place (all investments these days require some proof of identity and residence amongst other documents), obtain the necessary application forms, fill them in and submit them to your broker or agent or directly to the source of investment.

End note

Remember, investing is not rocket science but it does require you to dedicate a little time and effort if you hope to make it a success. To further facilitate your investment exercise, you could use the services of an investment advisor or wealth manager and benefit from their experience.

TERM INSURANCE A cost-effective form of Life Cover

Individuals take life insurance so that their dependents do not face any financial problems after their death. Premiums are paid on an annual basis and in the event of death, the sum insured is given to the dependents. Term insurance policy is the most basic form of life insurance which is considered an economical option. Let’s talk about its features and importance:

What is term insurance ?
A beneficial type of life cover, term insurance provides higher cover at low premiums when taken at an early age. The policy can be taken for a minimum period of 5 years. You can choose to pay premium annually, half-yearly, quarterly or even monthly. Term insurance provides coverage for a fixed duration. If anything happens to the policyholder in this period, claim is paid to the nominee. The amount can be given in lump sum or a certain amount can be paid monthly as per the family’s requirements. Thus, term insurance effectively takes care of all your liabilities and provides financial support to your family especially if you are the sole breadwinner.

When should I buy this policy ?
Although the minimum entry age for term insurance is 18 years, it is certainly too early. However, it is recommended that you take this cover in your mid 20s when one generally starts earning. Don’t wait too long because premiums increase as you get older. So the more you postpone, the more costly it becomes to obtain term insurance. Start with a small cover which is in line with your present income and gradually take more plans. Assess your policy once every 4-5 years to determine if you need a higher sum insured.

Are term plans available online ?
The answer is yes and in fact it is the best way to buy term insurance. There are various advantages of taking this policy online such as quick processing, complete transparency and reduced paperwork. Most importantly, you can analyse plans offered by different companies and select the one best-suited for you.

Term insurance has gained popularity among individuals wishing to secure financial stability for their families. It has been massively advertised by insurance firms and some have dropped premium amounts too making it the right time to take this policy. Have a detailed discussion with your financial planner and register for this policy in order to ensure your family has adequate funds to look after themselves in future.