Here is How You Can Build a Good Corpus For Your Child’s Future!

By | May 29, 2012

The best way by which you can build a good fortune for securing your child’s future is by investing in your child’s name from a very early age. Early age refers to as early as when your baby turns a day old! If you are interested in securing a great future for your child where he/she gets the opportunity to study in the world’s best universities for their higher education or help them in their own start ups or for securing funds for their marriage. All this is effortlessly possible if you start saving in your child’s name early.

First of all it is important that you structure your portfolio. Assuming that you are intending to save for your child so that your child can reap its benefits after the age of 18, you have 17 years in hand to invest. You can make the best use of it, by increasing your risk appetite. Remember, the greater your risk appetite, better are the chances to earn higher returns on your investment. And what better than equities can one benefit from if it comes to good risk and a substantially higher returns. Owning at least 4-5 equities in your portfolio can provide a good diversified allocation where your investments can earn a higher return over a period of time. The best way to invest in equities is to invest in Mutual Funds rather than fretting behind investing in direct stocks. Let your fund manager take care of the daily trading and fund allocation part but your responsibility is to ensure that you and your advisor have chosen good performing funds for the purpose of wealth creation for your child.

But for any reason if you are risk averse and want to keep your investments away from any uncertain market fluctuations, investing in traditional plans like Fixed Deposits or long term investment bonds is another option. But the funds will be locked in for a long period without any exposure towards market risk. Although what you need to know is that, although uncertainty prevails over the equities market, they do provide higher rate of returns when the market is in an upswing; in comparison to these traditional plans where the interest rate is fixed.

Investing in a Public Provident Fund (PPF) also is a very good option since it provides tax benefits as high as 8%. But it is not a one-time deposit account, in the sense that in order to keep the account active for the next 17 years you need to make the required annual payments into the account.

Another best advice that can be provided at this juncture is to make a good debt equity combination from the above mentioned choices. This will ensure overall growth of your portfolio since debt provides ample capital protection on investments in equities guarantee good risk exposure that can provide good returns.

With all these options available in front of you, you need to decide the target amount that you wish to save for your child and choose the funds that give you appropriate returns in a 17 year tenor. If you think this is going to be enough, you need to rethink. This evaluation is not going to help you much since you have not factored inflation rate. Inflation rate is a very important factor which determines the level of returns that your portfolio will enjoy. If you have not thought about the inflation rate as to what might be the percentage after 17 years, you are going to get negative returns.  You might need to opt for a personal loan or any other loans to bridge the gap to fund your child’s requirement. Although you might have good corpus figure, the funds in them may not be enough for you to finance your child’s requirements. Therefore it is important that you top up your fund’s every year so that you can stay afloat the inflation rate.

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