Having a child is one of life’s most joyous and rewarding experiences. However, it also comes with a lot of responsibilities and challenges, especially with managing your finances. Raising a child until age 23 can cost you anywhere from ₹1.5 crore and ₹2 crore, depending on the career choices. This number might seem overwhelming, and you may have many questions and concerns about securing your child’s future and meeting their growing needs.
Don’t get overwhelmed by the numbers; you can overcome them with some financial planning. Here are some tips to plan your finances to meet these goals.
How to Start Financial Planning as a New Parent?
Financial planning may seem daunting and overwhelming, but it is easier than it sounds. You can start by following these simple steps:
- Know where you stand: The first step is to see how much money you make and spend every month. This will help you to know your cash flow and financial situation.
- Set your financial goals: The next step is to decide what you want to achieve with your money for yourself and your child. These may include saving for their education, health, marriage, house buying, retirement, etc. Give yourself a rough timeline to achieve these goals.
- Pick the right investment products: Choose the best investment products that suit your goals, risk level, and return expectations. There are many investment options in India for new parents, such as bank deposits, insurance policies, mutual funds, stocks, bonds, gold, etc.
- Start investing as soon as possible: The fourth step is to invest as early and as much as possible for your child’s future. The sooner you start, the more time you have to grow your money and the less you need to invest.
- Seek help from professionals: Not all of us are experts at planning our finances, so to avoid any scope for errors, it’s always suggested to seek advice from a financial planner or investment advisor as they tailor fit your plan according to your current financial situation and future goals.
- Review and revise your financial plan: The final step is to check and update your financial plan occasionally and whenever there is a significant change in your income, expenses, goals, or situation.
What are the Best Investment Plans for Your Child in India?
As mentioned earlier, various investment options are available in India for new parents. However, not all of them may be suitable for your child’s future. You need to choose the best investment plans for your child that offer the following benefits:
- High returns: The investment plan should offer high returns that beat inflation and help you accumulate a large corpus for your child’s future. Mutual funds are one of the best options in such cases. On average, a decent mutual fund provides 12% growth per year, and over the years, this money compounds and, at times, doubles up.
- Low risk: The plan should have low risk and volatility that can protect your capital and ensure steady growth of your wealth. Fix deposits are a great example of the same; they don’t grow like mutual funds, but they ensure growth and are not volatile in nature.
- Liquidity: It must have high liquidity that allows you to withdraw your money easily whenever needed. Investments like mutual funds and gold are one of the safest options when it comes to ensuring liquidity, as they can be sold at any given time.
- Tax efficiency: Low or no tax liability can maximize your post-tax returns and reduce your tax burden. Investing in tax-saving funds can provide you with growth like mutual funds without having taxes attached to it, but it comes with the cost of a lock-in period affecting your liquidity.
- Flexibility: The plan should allow you to change your investment amount, frequency, duration, and scheme per your convenience and preference. Again, investments like mutual funds are a perfect example of flexible investments as you can opt in and out anytime with a marginal cost on your profits.
Based on these criteria, some of the best investment plans for your child in India are:
- Child Insurance Plans: These life insurance plans provide a dual benefit of insurance and investment for your child. They offer a lump sum amount to your child in case of your death or disability and also a maturity benefit at the end of the policy term. They also provide various riders and add-ons to enhance coverage and benefits.
- Equity Mutual Funds: These offer high returns in the long run and help you diversify your portfolio and reduce your risk. They also provide various tax benefits, such as exemption from long-term capital gains tax and deduction under section 80C.
- Sukanya Samriddhi Yojana (SSY): This government-backed scheme is exclusively designed for girl children. It offers a high-interest rate that is tax-free, revised every quarter. The accumulated money can be used for the girl child’s education and marriage or can be withdrawn by the girl after the age of 18 years.
- Public Provident Fund (PPF): Another tax-free government-backed scheme offering a high-interest rate revised every quarter, making your finances future-proof.
Financial planning is not a one-time or static thing. It is a dynamic process that requires constant review and revision. You must keep yourself updated with the latest market trends and opportunities and make informed and prudent decisions. And remember, the sooner you start, the better it is for your child’s future. Happy parenting and happy investing!
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.