Sir, please tell me the best investment plans for child having age below one year
Ans: You have made a smart move by planning early for your child’s future. Starting before age one is ideal. It helps in building a solid corpus for education, marriage, or any future need.
Let’s now look at how to plan a strong investment structure from all angles.
» Understand the Time Horizon
– Your child has 17+ years before college.
– This is a long-term investment window.
– It allows you to choose equity-focused investments.
– Compounding works best over such long horizons.
– Avoid locking money in rigid traditional instruments.
» Avoid Traditional Child Plans and Endowments
– Most endowment or child insurance plans give low returns.
– They usually yield 4% to 5% annually.
– These are not suitable for education goal planning.
– Mixing insurance with investment is not efficient.
– It is better to keep insurance and investment separate.
» Stay Away from ULIPs and LIC Investment Policies
– ULIPs have high charges in the initial years.
– Returns are not consistent or transparent.
– LIC’s endowment plans give low maturity value.
– Most plans lack flexibility and liquidity.
– If you already have such plans, consider surrendering.
– Reinvest that amount in mutual funds systematically.
» Focus on Equity for Long-Term Growth
– Equity mutual funds help beat inflation in long run.
– They have potential to deliver higher returns.
– You can start SIPs of even Rs 500 monthly.
– Gradually increase SIPs as income grows.
– Diversify across multiple equity fund categories.
» Choose Actively Managed Mutual Funds
– Do not invest in index funds for child goals.
– Index funds copy the market and offer no active management.
– They underperform in falling markets.
– No downside protection is available in index funds.
– Instead, opt for actively managed equity funds.
– Experienced fund managers guide the portfolio strategy.
– They shift allocations based on market cycles.
» Avoid Direct Mutual Funds
– Direct plans do not give advisory or support.
– You may miss rebalancing at the right time.
– Many investors pick wrong funds or continue poor performers.
– A MFD (Mutual Fund Distributor) with CFP credentials adds great value.
– You get goal mapping, performance tracking, and expert guidance.
– Regular plans provide this support for a small fee.
– That support is crucial for child education goals.
» Mix Categories for Balanced Growth
– Use a combination of large-cap and flexi-cap funds.
– Add a small-cap fund in small proportion for high growth.
– Consider an equity & debt hybrid fund for stability.
– Do not go overboard with sectoral or thematic funds.
– Avoid funds with high volatility or low consistency.
» Start SIP Immediately and Increase Yearly
– Start monthly SIPs right away.
– Even small amounts matter when started early.
– Increase SIPs every year by 10-20% as salary grows.
– This step boosts the future value significantly.
– Use step-up SIP facility where available.
» Open a Minor Account and Track Separately
– Create a mutual fund folio in your child’s name.
– Use your name as guardian till age 18.
– This builds an emotional connect and financial discipline.
– It also keeps funds segregated from general investments.
– Avoid premature withdrawals from this corpus.
» Add PPF for Debt Component
– Public Provident Fund is ideal for child’s debt allocation.
– It gives tax-free returns and is government-backed.
– Lock-in period is 15 years, which suits child goals.
– Invest Rs 12,000 per month or Rs 1.5 lakh annually.
– Do not withdraw from PPF till maturity.
» Do Not Use Sukanya Samriddhi Yojana (SSY)
– SSY is only for girl children.
– Even for them, liquidity is limited.
– Withdrawals allowed only after 18 or for marriage.
– Returns are not market-linked and may underperform equity.
– Use better flexible instruments like mutual funds and PPF.
» Avoid Real Estate and Gold for Child Planning
– Property needs large capital and has liquidity issues.
– Maintenance cost and legal hassles are extra burden.
– Gold has been underperforming against equity in the long term.
– Physical gold carries risk of theft and impurity.
– Instead, invest in productive and flexible options.
» Set Goal Amounts and Track Progress
– Estimate future cost of education at current prices.
– Use a 10-12% inflation factor over 18 years.
– Break the target into short-term, medium, and long-term milestones.
– Track the corpus annually and rebalance if needed.
– Stay disciplined even if markets fall temporarily.
» Add NPS as an Optional Long-Term Tool
– Not mandatory, but can be used in child’s name post-18.
– NPS has lock-in but charges are low.
– Useful only if you want to gift child a retirement fund.
– Not suitable for education corpus.
» Avoid Annuities for Children
– Annuities are rigid and give low returns.
– They are meant for retirement income.
– They don’t suit children’s education or growth planning.
– No flexibility to withdraw for child’s future needs.
» Taxation Awareness for Future Withdrawals
– Equity MF gains are tax-free up to Rs 1.25 lakh LTCG.
– Above that, taxed at 12.5%.
– Short-term gains taxed at 20%.
– Debt MF taxed as per income tax slab.
– Plan redemptions smartly across years to reduce tax.
» Have a Separate Emergency Fund
– Do not dip into child fund for emergencies.
– Keep 6 months of expenses in liquid fund or bank FD.
– It protects long-term goals from short-term pressures.
» Buy Term Insurance for Parents
– If earning parent is no more, child goals suffer.
– Take a term plan of 15-20 times of annual income.
– Premium is low when taken young.
– No need to take child insurance.
– Child is not the breadwinner and doesn’t need insurance.
» Health Cover Is Equally Important
– A medical emergency can derail investments.
– Take Rs 10–25 lakh family floater plan.
– Add Rs 5–10 lakh super top-up as well.
– Keep child added in the policy from start.
» Include Your Spouse in Financial Planning
– Both parents should be aware of child plan.
– Keep folio details, goals, SIPs transparent to each other.
– In case of death, other parent can continue investments.
» Keep Investing Even During Market Falls
– Don’t stop SIPs during crashes.
– Falling NAV means more units bought.
– That boosts returns over the long term.
– Emotional investing leads to poor decisions.
– Stay systematic, not reactive.
» Use Gift Funds and Bonuses to Add Lumpsum
– Yearly bonus or gifts can be used for one-time investments.
– This supplements SIPs and accelerates growth.
– Invest lumpsum in staggered tranches, not at one go.
» Review Portfolio Every Year
– Check fund performance annually.
– Replace underperformers after 2–3 years of poor show.
– Do not change funds frequently based on noise.
– Stick to your goal plan and rebalance yearly.
» Start With Rs 5,000–Rs 10,000 Monthly SIP
– Increase it based on affordability.
– Higher SIP ensures early achievement of goals.
– For age 0–1, even Rs 3,000 monthly can create value.
» Open a Will or Nomination for All Investments
– Nominate your spouse for mutual funds and PPF.
– Keep documents in order and share access with spouse.
– This avoids legal delays in future.
» Final Insights
– Starting early is your biggest strength.
– Stay focused and consistent over 18–20 years.
– Avoid complex, low-return, or rigid options.
– Keep goals, returns, tax, and liquidity in balance.
– Child’s future depends on your planning discipline today.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Question by Sadiqulla on Feb 12, 2023Hindi
