Financial planning for kids: Here's how you should invest for child

Financial planning for kids: Early financial planning is very important for leading a happy and tension-free life.

Financial planning for kids: If future financial expenses are planned properly then it becomes much easier to tide over any financial crisis later in life. Image source: Pixabay

Financial planning for kids: Early financial planning is very important for leading a happy and tension-free life. If future financial expenses are planned properly then it becomes much easier to tide over any financial crisis later in life. People who do not systematically arrange their financial goals find it difficult to manage expenses such as education and marriage, among others. Parents should systematically invest for their children when they are very young. The earliest it is done, the better it is. There are various financial instruments where parents can invest to secure their wards' future.

Balwant Jain, a Mumbai-based tax and investment expert, said that parents should first decide what are their major investment goals for their wards and according to that they should start investing. The investment for the child depends on time horizon, he added. To cover the major expenses in future such as education, Jain suggests parents should adhere to the following investment horizons:
Investment horizon 3-5 years: Parents should invest in debt funds
Investment horizon 5-7 years: Parents should invest in aggressive hybrid equity funds
Investment horizon 7-10 years: They should invest in large-cap funds
Investment horizon 10-and above years: They should go for small and mid-cap funds to get greater returns

Parents should not be misguided by policies names as "child plan". "They (parents) have to invest pragmatically to get best returns on their investment. Suppose when they are investing for their children's education, they should plan the expenses that will be required in future year-wise- investment for first-year, second-year, third-year, or fourth-year of education," Jain said. They also must monitor their funds on a regular basis. Non-performing funds have to replace with the better performing plans after a certain time if they do not perform well," said Jain.

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When investment goals are about to reach, parents should put the corpus in safer schemes such as debt mutual funds, as they will require the fund at a particular time. They should not invest in close-ended funds, as many a times expenses do not occur at a pre-determined time, he suggested.

Jitendra Solanki, a SEBI-registered investment expert, told Zee Business Online, "Parents should start financial planning for their children as early as possible. Investment should be done to cover major expenses such as education and marriage. If parents start investing at an early age then they get much time to make bigger corpus for their wards."

"Suppose, if a parent starts investing for the education of their child right after birth, the time horizon works in their favour. They get about 17-18 years time; before they go for higher education; to make corpus, therefore, parents can take the risk. They can go for aggressive funds. Under such a situation, parents may go for aggressive equity funds to make much bigger corpus for their children."

When the time horizon is shorter, parents may opt for balanced funds, as they do not have much room to take the risk, he said. When the child is at the age of 10, parents should invest in balanced mutual funds where risk is minimal.

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