The initial euphoria, however, wanes as the parents start pondering on issues like financing the child's education and marriage when she/he grows up. Investing for a child's future is, therefore, an issue that parents should devote a lot of time and effort towards.
The following is a list of some financial instruments which parents can consider for building enough financial resources to take care of their child's future.
Savings account: This is the most used and least effective way of investing for a child's future. Savings account offers the lowest return among all financial instruments.
Mutual fund: A child plan mutual fund usually has both stocks and bonds in the portfolio. When the stock market goes up, the equity (stock) portion of the fund generates returns. When the stock market goes down, there is the debt portion which generates assured (assuming the debt issuer doesn't default) returns. There is also tax advantage associated with investing in mutual funds which are taxed only at maturity.
Stock market: The Indian economy is the fifth largest (in PPP terms i.e Purchasing Power Parity) in the world. There is consensus among analysts regarding the strong positive medium and long term outlook of the Indian economy.
Insurance: The market is flooded with a number of child insurance plans. The risk cover in these policies is on the earning parent(s) and not on the child.
The plans work on the beneficiary concept, where the beneficiary is the sole person to receive the benefit (usually the child).
Commodities: Investing in commodities is done by some families, It is a good idea because of two reasons. One, returns generated by commodities in the current scenario is higher than the inflation rate. Two, commodity based funds are on the anvil and is set to add another dimension to investors' portfolios.
Source: Rediff
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