Investment for kids: No child's play

Updated on: Monday, February 13, 2012

Manju Goel, a chartered accountant, never considered compromising on her child's education to reduce expenses. But she did not know the definition of it would only get wider. Joining guitar and dance classes was "essential", she understood; but when her six-year-old asked for a tablet computer as her birthday present, Goel had to put her foot down. "Her friend brought a tablet to school, and now even she wants one as she says it will help her finish her homework faster," said a surprised Goel.

From putting aside the fees of an international school to saving money for a prospective graduation overseas, investment into education is turning into a nightmarish experience for today's parents. So much so that, even saving for their daughter's marriage or their own retirement seems to have taken a backseat. While children aim for an admission in high-flying institutions, for parents it only entails an ever-growing list of expenses. A survey conducted by insurance company Aviva India shows that over 70% of parents prioritize investing for education of their children as against 45% who save for their retirement. The importance of marriage for the child, too, has slipped down to a meagre 24%.

Even more than higher education, it is the short-term expenses that parents are finding increasingly difficult to cope with. Aman Varma, a businessman, says he has been busy making plans for his daughter's ninth birthday next month for the past two months now. "Saving for everyday expenses has become difficult now. Where is the time to save for her marriage?" says Varma.

"Children today are a lot more aware and informed. They see and read things and know exactly what they want. As parents, we have to fulfil their demands," says Goel.

So what exactly would be a prudent investment option today? Investing in mutual fund SIPs and PPF continue to remain most popular as they offer fixed returns after a certain time. But sticking to a disciplined plan is important if you want greater returns.

Experts believe procrastinating investment plans is the most common mistake parents make. A timely plan equips you with a proper assessment of all the cost factors as also allows you to select schemes and products that ensure maximum returns.

Even for parents who start investing when the children are young, there are a good many chances of getting caught off guard with last-minute expenses. It is quite likely that you end up using the money saved for a rainy day for something you may not have earmarked.

Some little calculations can do the trick for you. While parents may shy away from investing in equities, experts suggest that with a longer time horizon in hand, this could be as lucrative an option. Taking calculated risks will help maximize returns, says Surya Bhatia, managing partner, Asset Managers.

Again, most parents consider a single corpus of investments for children, but wealth managers advise creating different baskets for various categories like education, marriage or maybe helping the children settle down. A financial planner can help ease the task, as multiple investment pools can create management hassles.

In case of insurance, Bhatia believes, parents end up confusing between insurance and investment products. Worse still, most of them opt for covers that go by the name of "children's plans", which are more expensive and often eat into the returns. Besides, they, too, invest in the same instruments - equity or debt, like in the case of mutual fund. Having a diversified investment portfolio will ensure greater returns. However, what is important is to downsize the risk appetite as you approach the time for liquidating your assets.

If you are a risk averse person, investment in mutual funds and gold ETFs is recommended.

"Investment in SIPs and gold ETFs is increasing. With gold prices going through the roof, ETF has an advantage as you can buy in small amounts for a long period of time and then hedge it for physical gold," said Vineet Arora, executive vice-president & head of production and distribution, ICICI Securities. Experts also recommend that parents should opt for schemes like mediclaim for both themselves and the child.

Times of India

Investment for kids: No child's play

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