Road map to a secure future

A good financial plan should include an insurance cover to safeguard your children's future, says Rohit Bhuta, CEO, Religare Macquarie Wealth Management.

Rohit Bhuta        Print Edition: February 2011

Investment goals depend on your lifestyle, ambitions and stage of life. Despite this, all married couples with kids have one objective in common-securing their children's financial future.

Early planning combined with right investments is crucial for achieving this goal. The cost of children's education and marriage, the two most important investment planning milestones, have increased significantly over the years as demand for quality education to remain competitive has increased substantially. The rise in cost of education has by far outweighed the rate of inflation in the country and the trend is expected to continue.

In contrast, the rate of interest offered by traditionally attractive long-term products, such as the Public Provident Fund and National Savings Certificates, has gradually decreased over the years.

A good plan will take into account your current financial health as well as requirements and objectives. It should begin by ensuring a minimum cover to secure your and your children's future through insurance and estate planning.

Insuring your life is always the first step to financial planning. You need to have adequate health and life insurance coverage through health and term plans so that children's needs are not compromised in case of an unfortunate event.

Timely succession and estate planning are key to a hassle-free future for parents as well as their children. Once your wealth is protected against any exigencies and unforeseen events, it is important to ensure that your portfolio is appropriately diversified and in line with your financial goals. As planning for children's future is a long-term objective, you should evaluate exposure to various asset classes.

The following investment vehicles could potentially be used. The allocation to each would depend on your risk profile and goals.

Ulips: Unit-linked insurance plans (Ulips) offer various mixes of debt and equity depending on the risk appetite and market conditions. Also, the investment returns are tax-free. Moreover, insurance companies offer unique child plans, where payouts from these plans are structured as per the anticipated needs of the child in case of an eventuality.

Mutual Funds: You should invest regularly in mutual funds with exposure to diversified and appropriate underlying assets.

You can use Ulips, child insurance plans, mutual funds and commodities to save for your child's future. The allocation to these instruments will depend on your risk appetite and needs.
Commodities: Precious metals like gold offer a good hedge against inflation and have traditionally been a great way of saving for a child's future.

Real Estate: Property can ensure regular income as well as capital appreciation over the long term. However, due to its illiquid nature, careful consideration should be given to the maximum exposure in the overall portfolio.

Bank Accounts: Opening a separate bank account for your child's investments would ensure that planned savings for building the required corpus are not used for any other purpose. It will also make it easier for you to track the deposits.

Zero-coupon Bonds: Bonds with long maturity, high credit rating and zero coupon offer good investment opportunities for long-term savings. As the maturity proceeds of these bonds are treated as capital gains and not as interest, they enjoy better tax treatment than traditional bonds.


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