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The best investments for your child�s future

Published on Wed, Nov 14, 2007 at 15:00 | Source : Moneycontrol.com

Updated at Fri, Nov 16, 2007 at 12:08

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By B Sreenivasan

Moneycontrol reader Apoorva has a question: "My brother is 25 years old and earns a take-home salary of Rs 22,000 per month. He will be married next year and wants to invest in a child plan where the liabilities of children's education and marriage are taken care of. He has no liabilities as of now for parents and siblings, and is totally independent. Please suggest investment options that will help me plan better."

Some of the fundamental requirements to build up a good corpus for your child's future include:

- Chalking out a goal with a clear time-frame and corpus requirement
- Making regular and systematic contributions.
- Being clear about the returns expected in each of the instruments and the tax implications over a long period for each of the instruments, selected.

You can look the following instruments in the current circumstances:

Ideal Mix:

Traditional Insurance plans:        30%

Unit Linked plans:                     15%Children mutual funds:               20%Diversified equity funds:

(in the name of children)             10%Direct equity:                            15%Commodities:                            10%

Insurance plans: The various child insurance plans available in the market, not only provide the basic risk cover that is an essential requirement for a long term plan. They also provide a good tax advantage.

It is also be very clear that the risk cover under these policies should clearly be on the earning parents, and child's life should not be covered.

When compared with other investment avenues, child insurance policies have some advantages:

� The claims are made out to the children and not to the parents.

� They provide for disciplined and committed payment of premiums throughout the policy period.

� There are no liquidity points like loans against policies etc., which ensures the corpus saved cannot be diverted for any other cause.

� The maturity claims are made only at the predetermined periods, thus ensuring a guaranteed receipt of the money when they are really needed.

� The payouts/maturities can be worked out at the beginning only as per the need.

� Finally, because of the risk cover provided under these policies, they ensure with or without the policyholder, the goal will definitely be achieved.

Unit-linked Insurance Plans: The basic, traditional children plans usually work as an alternative for the bank deposits etc. On the other hand, unit-linked insurance plans can be used as a double advantageous plan where the risk is also covered and the investment decisions will remain in the hands of the investor and thus can generate much better returns. Advantages of ULIPs when compared with traditional policies include:

� In addition to the necessary risk cover, they also ensure that investments can be channeled into high growth options.

� Provides enough flexibility in the withdrawal of funds.

� Some of the current schemes, in addition to the risk cover of sum assured also protect the future income generation potential also.

The author is a Certified Financial Planner and Member of Financial Planning Standards Board, India. He can be reached at srini.shreesidvin@gmail.com .

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