Planning for your child should start very early, be it a single child or two children. This would help you meet at least the key financial objectives like schooling, college, higher studies and marriage, to name a few, without putting a strain on your regular finances.
Early investing helps in power of compounding kicking in to help your money multiply, thereby leading to wealth creation and provide for regular returns to meet various financial objectives. A long term investment plan would also help you beat inflation and result in moderate to nil tax payout, the later depending on the asset class you have invested in. However, the critical part is to be systematic and relatively disciplined.
Here I am giving you a rough plan for investing in various asset classes that you can consider for investing for your child. The percentages allocated to various asset classes are examples and would vary depending on the risk and need of every parent vis-a-viz their child:
Equity through diversified equity mutual funds (allocation: 50%): You should prefer a mix of 40% to diversified frontline mutual funds and 60% to midcap mutual funds. Mutual funds are actively managed and by investing systematically over a longer period, of say till the child attains the age of 18 years, one can reap very high returns due to the power of compounding.
Gold (allocation: 15%): This should be an integral part of every parent's financial planning. One can easily buy exchange traded Gold Funds (that is Gold ETFs) or E-Gold from the National Spot Exchange. Though this was considered a tool to hedge against inflation and interest rate, post global crisis of 2008 this is considered for investment purposes. With persistent global problems, gold as an asset class should do well. tSilver (allocation: 5%): Silver is used mainly for industrial purposes including sectors like power. This is also a precious metal. This could appreciate very well as more industrialization would probably lead to depletion of silver resources.
Traditional insurance products (allocation: 15%): Avoid Ulips as mutual funds would suffice and are less costly. Invest in traditional products which are unique and helps in legacy planning.
Buy real estate (allocation to land: 15%): Buy small land parcels for your child. Try and participate in co-operative society schemes with regular investment option. Though this is easier said than done as it involves some study and direct monitoring, yet this asset class can provide very good returns over the long run. With no urgent need for liquidity, land is considered the real wealth creator. Buy land in fast growing places with potential for appreciation in the long run, say 10 years or so.
Happy Investing!!
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