Financial planning for your child's future is one of the most important challenges the moment your child is born. Nowadays, along with the joys and festivities of your bundle of joy you also have to start planning for your child's future. Typically, planning for your child's education is a major long term investment, but then your child’s marriage can also set you back considering that you need to conduct the wedding according to what the society tacitly demands. Obviously, you want to give your child the best on their wedding day. So, how to go about making marriage investment plans for your child. Of course, there are child marriage plan calculators that can help you figure out the amount required, but they are too basic in nature. Your financial planning for your child's future should be predicated on 3 key factors viz. the rising cost of weddings, the need to make a social statement and to ensure that your plan is foolproof enough to take care of your child's security before and after her marriage. Here is how to go about it..
Financial planning for the child's future begins with projecting costs..
It is actually hard to do any extrapolation of wedding expenses as the nature of weddings has drastically changed in the last few years and that trend is likely to continue. You need to factor in normal inflation and you also need to factor in new trends. Nowadays, weddings have become elaborate affairs and they encompass a host of extravagant ceremonies before and after the wedding. Then there are the dresses and the gifts and they can amount to quite a bit. Add the cost of renting the hall, the catering costs and the jewellery and you may end up staring at a huge sum. The thumb rule is that wedding costs typically increase 3-fold every 10 years. So if you are looking at an average wedding cost of around Rs.10 lakhs today then you would be looking at a bare minimum of Rs.50 lakhs in 15 years from now. That obviously means that you need to make your investments work really hard for you. Here is how..
Make your investments work really hard for you..
Considering the marriage expense of approximately Rs.50 lakhs 15 years from now, we have worked out the SIP that you need to create. But the most important question is what should be your asset mix. It is possible to be very conservative and start off the marriage plan with a balanced fun. These balanced funds typically invest with a 65% exposure to equities and 35% exposure to debt. Therefore, they combine the wealth creation abilities of equity with the stability and regular income of debt. That makes these balanced less risky from an investor's point of view. A balanced fund would typically give you a return of around 12% approximately. That will mean if you start off with an SIP of Rs.10,000/- per month in a balanced fund then you will end up with a corpus of Rs.50 lakhs in 15 years. That will be good enough to take care of your child’s wedding expenses. But is there a better way of financial planning for your child’s future.
In fact, since the target date is approximately 15 years away, you can leverage better on the power of equities by tilting the marriage investment plan more in favour of equities. Let us understand this with the help of this Child marriage plan calculator..
Let us assume that instead of opting for a balanced plan you decide to make the best of the long time perspective. You do a SIP on an equity fund for 12 years and then convert the entire corpus into a debt fund for 3 years to avoid equity market risk. While the equity fund redemption will be tax free, the debt fund redemption will attract long term capital gains tax at 10%. Even after considering that tax outflow, you will end up with a CAGR return of around 16.2%. If you adopt this plan, then your SIP can be restricted to just Rs.7,000/- per month instead of Rs.10,000/- per month. That is how you leverage the power of equities and make the money work harder for you.
Don't forget the insurance aspect in financial planning for your child's future..
Financial planning for your child's future and your child's marriage investment plans will be incomplete without adequate insurance built into it. Your SIP for your child’s future should not end in case a calamity befalls you. Hence the insurance cover should take care of a structure where the long term saving continues even in your absence. Such plans are available on offer from insurance companies and you can review them. Your plan should also incorporate a regular annuity flow for your child after marriage so that some security and continuity is built into your financial plan.
You therefore need to focus on building the corpus, focusing on the right asset mix and imputing insurance. That is what will make your plan truly robust!