Father’s Day 2022: 4 rules that young fathers need to follow on child investment plans | Personal Finance News
New Delhi: One of the most crucial things that millennial parents worry about is whether they are doing enough for their children’s financial security. As a young dad, you might be tempted to follow age-old investment methods but remember that being a millennial father can be a whole new ball game.
Vivek Jain, Head – Investments, Policybazaar.com, in a conversation with Reema Sharma of Zee Media said, “Fatherhood is a beautiful mess they say. While you are still in that process, the exorbitant costs of raising and educating the child start hitting you in quick succession. This is the time when you need to have a long-term child investment plan in place.”
Jain added, doing so without thorough research can however quickly escalate into a disaster. With Father’s Day 2022 just around the corner, Jain shares 4 big rules that young fathers need to swear by to sail through this new and confusing role on the money front:
Start early, be patient
The earlier you start investing for your child, the better the return on investment. You may start investing as early as 90 days after your baby’s birth. Raising a child up to the age of 18 years old or till he/she goes for higher studies and then gets married, costs anywhere between Rs 2-4 crores. Let’s say your child decides to pursue an MBA degree. It is common for young parents to make the mistake of thinking that if the said degree costs Rs 30 Lakhs today then that is how much you need to save. Let us say that today, your child is 1-2 years old. You have to keep in mind that inflation in education is at 910% pa. So, even if the college fee increases at a rate of 6% every year, the same degree is likely to cost at least Rs 1 crore by the time your child goes to college.
Old is not always gold
It is common for young fathers to go by the traditional methods of investment like Fixed Deposits or simply keeping a large share of their pay in the savings account. However, as a millennial father, you absolutely have to upgrade your investment style.
For starters, you should know that keeping your money in a savings account is counter-productive. Not only is the rate of interest considerably low, but in most cases you also have to pay taxes the moment your interest amount goes above Rs 10,000. As far as FDs are concerned, the declining rate of interest on this traditional investment option should be your first clue. If at all, you should be investing in FDs only for a long term as that way you are sure to get higher returns. But ideally, you should explore the more advanced investment options out there.
Know your options
The best investment options for your child always lie in the world of insurance. Why? These give you the ideal combination of high interest, tax-free returns, and constantly evolving products. For instance, fourth-generation ULIPs (Unit Linked Investment Plans) are a great bet as your returns can go as high as 12-15% and the market situation. A big plus is that the premium paid is eligible for tax deductions under Section 80C of the Income Tax Act 1961 and so are the returns. It even gives you the flexibility to alter the ratio between equity and debt at any point during your investment period by switching your investment among different fund options available.
Another smart option for younger parents is a guaranteed returns plan. The returns in this plan can go as high as 6.4%. The best part is that these too are tax-free. Yet another option that gives you the best of both worlds is Capital Guarantee Plans which give you a sense of security that at maturity you will at least get back your total premiums paid.
Prepare for the worst
Parents can plan almost everything but not their life span. This is where insurance-cum-investment plans come into play. All of the investment options mentioned in the above section come with a life cover option wherein a lumpsum amount is paid to the nominee.