Ways to plan for your childís future

By: Debanjan Guha Thakurta

Ways to plan for your childís future
Your parents built a sound moral and financial base for you to study and establish your career. Hence, it is natural for you to wish that your kidís financial plan is similarly set right in order to ensure a smooth run up when your children grow up and become independent. However, with the vagaries of the markets and the range of products available, you get confused and are unable to come up with a plan that will deliver exactly what you need for your child's future.

Were you aware that a four-year degree course can amount to as much as US$166,241 (Australia), US$238,188 (Britain), US$236,682 (US), US$104,480 (Canada)? A similar course in India is cheaper but on an average, can still come up to a significant amount. In this case, we have considered approximate fees in current times, which do not include inflation and future increase in fees! Therefore, earlier you set your childís financial plan in motion, easier it is for you to meet loftier targets, without the need to take excessive risk or exposure. For reference: Beginning to plan as early as when your child is one year old is considered a safe point.

There are a number of ways to go about ensuring that you have sufficient funds when your child's university entrance beckons:
1. Savings in the bank
2. Public Provident Fund (PPF)
3. Stocks
4. Insurance
5. Mutual Funds

Savings in the bank
We do not recommend you to keep money in the bank at the savings rate of 3.5-4% p.a. in order to accumulate funds for your child's education. If you have some time on your side, you should invest your savings to get better returns.

Public Provident Fund
PPF has a lock-in period of 15 years. Therefore, it is ideally suited when you start putting the money once your kid is born; so that by the time your kid is ready for college, you have sufficient money. In addition, investing in the PPF account saves income tax as the interest earned from it is tax free. You can also open a minor account for your child apart from your own PPF account. However, the upper limit of INR 70,000 per account still holds for each account.

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Debanjan Guha Thakurta is an Analyst at Fundsupermart.com, a B2C arm of iFAST Financial India Pvt Ltd. He is responsible for writing financial articles and reports related to Mutual Funds, Personal Finance and Indian economy.

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