CHILD INSURANCE PLANS

Financial Planning for Children Education

Financially our lives can be divided into long terms goals and short term goals. The short term goals could range from taking a foreign holiday or buying the latest LED

television in the market. Long term goals are usually far away in the horizon. However, you start investing because of their future value. Fortunately for parents, there are

enough investment products to help them fulfill the dreams for their children. Chosen appropriately, these options can help you save enough to send your daughter to the

best college in the country, or book a 5-star hotel for your son's wedding. No concession in life insurance premium or special interest rate or return will be offered

for the investment meant for your child’s higher education. The choices will largely be dependent on these four factors

Introduction

Time period of the investmentThe tenure of investment is dependent upon how early or late you start

investing for your child’s higher education. If you start early it allows you to take risk and aim for higher returns from equities. The longer period also

reduces the overall risk. However, if you are starting late then you will have to go for schemes that will have modest returns preferably with capital

protection.

Risk appetiteAs an investor if your risk taking appetite borders on the higher side, then take a leap and invest in equity oriented mutual funds. Equities have often been known to generate the best returns over a long period of time. You will also have to bear with fluctuations of the market at the same time and cannot allow slight volatility to affect your nerves. However, if you have low or moderate appetite for risk then you may invest in balanced funds, capital protection fund or even debt funds. The other option is to opt for traditional form of investments like fixed deposits, postal saving, PPF or Sukanya Samriddhi Scheme if you do not want to take any risk at all. This will provide security of assured returns.

It is your responsibility to keep a track of your investments. The investment segment focused on your child’s higher education should generate a certain percentage of return annually. The return is crucial to the creation of the corpus. Hence, if any of the funds are under performing then you must consider switching funds or making additional investment to compensate for it. The overall return generated is crucial to the corpus your child will require for the higher education purpose.

Taxability of the income and returnsLet us assume that you have invested in fixed deposits and along with the principal and the interest accumulated you have created a corpus for your child’s higher education. However, when you are about to withdraw, then the gains are taxable or treated as an income and you have to pay an income tax according to your income slab. After the tax deduction you have fallen short of the predetermined amount. Hence, while determining the goals, you must take possible taxations into consideration.

The overall returns generated

ConclusionOne always expects the best from their children. As parents you push them to work hard and aim for excellence. However, the same needs to be reciprocated by you. A shortage of funds, when you could have created a corpus, is not an excuse to deny your child the best education. Do not fool yourself by thinking that your child is too young and you will utilize this time to focus on other life goals. Start early to avoid shortages and make the best out of your child’s life.

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