Plan Ahead For Your Child

While most of you plan in advance about the school your child would attend or the destination for the next family vacation, or even how to celebrate your child’s birthday, many a times an important piece is forgotten —that of saving and investing for your child’s future. Most of you also feel that you are saving enough but have you cross checked with experts. Read the blog here where experts from Franklin Templeton Mutual Fund guide you on investing for your child’s future.

Q1) What should be kept in mind when planning for your child's future?
Inflation is the key aspect that one must keep in mind when planning for the future. This is because the cost of a goal will be much higher in the future than today owing to the impact of inflation. Hence one must save as per goals by classifying them as short term and long term goals. Short term goals may be your child’s school and coaching class fees, etc while long term goals would be higher education, marriage, or providing them with capital to start their own enterprise (if need be). Equity may be an important asset category that one may consider in case the objective is of meeting long term goals which are 10-20 years away. Last but not the least, one must buy adequate amount of insurance as well so that in case of any eventuality, the goals don’t get compromised. Insurance would include health and term insurance for family.
Q2) When choosing a plan, what are the options available?
It is important to first invest at a goal level (for example: planning and savingfor higher education. Plan out how much money will be needed in future, keeping inflation in mind and then make investments accordingly) rather than saving as a pool and withdrawing from the pool as and when the goal needs to be met. Secondly, one must divide goals as long term and short term goals. Equity oriented investments are preferred for the former and debt oriented investments for the latter.

Further, investments may be made as per one’s risk appetite (profile), i.e., conservative or aggressive. Conservative investors prefer investment options which are less risky, offering higher consistency of returns and low or no loss of capital. Aggressive investors prefer riskier investments like equities in lieu of expected higher returns. In case of equities,investors stand to gain money in a market boom and may lose money if the market is in a bear (downside) phase. However, longer holding periods help to negate the impact of a bear phase. Itis,therefore, important to choose equity as an asset class for long term goals besides investing regularly across other investment products.
Once the asset class combination (equity, debt, gold, real estate,etc) is decided, one may choose mutual funds within each asset class. A newcomer may approach a professional financial advisor to choose the right mutual funds to invest in. Within funds, you may choose options like dividend or growth.In case one needs intermittent cash flows (dividend option) or not (growth option). Further, one may invest in a regular plan if you go through an advisor and in a direct plan if you invest directly with the fund house.

Q3) How to make a correct decision between so many plans and so many mutual fund companies?
One must attend investor awareness programs of mutual fund companies to understand the nuances of investing in mutual funds. Till you are confident, you may avail the services of a professional financial advisor to make a well informed investment decision. Many independent research houses also provide information on the best performing mutual fund schemes on their respective websites. To invest yourself, one may filter fund houses by qualitative attributes like their vintage, their parentage, their team pedigree, quality of processes, transparency / disclosure levels, grievance redressal, service network, quality of website content and then apply quantitative attributes like performance, risk and portfolio parameters (or fund rankings).

Q4) What are some dos and don’ts to keep in mind when finalizing a savings plan.
Here is a ten-pointer that will help you plan and take an informed investment decision:
i) Spend what is left after saving rather than saving what is left after spending (Save first, Spend later)
ii) Understand the impact of inflation on your future goals
iii) Invest as per your goals and risk profile
iv) Diversifyacross asset classes - equity, debt, gold, real estate- to minimize portfolio risk. In short, do not put all eggs in the same basket
v) Be a regular and disciplined investor, and invest through Mutual Funds’ Systematic Investment Plans or SIPs
vi) Invest in equity for long term goals
vii) Start investing at an early age, possibly from your first employment
viii) Do not time the market and don’t be impulsive while investing
ix) Adequately insure yourself for your goals and health
x) In case you lack the skills of making an informed investment decision, engage a professional investment advisor.
An investor education and awareness initiative by Franklin Templeton Mutual Fund.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Franklin Templeton Mutual Fund has provided inputs to this article as a part of it investor education and awareness initiative. This article is dated August 18,2014. Information contained in this article is not a complete representation of every material fact and is for informational purposes only. Regulatory/ taxation details are provided on a best effort basis and are as per the existing laws and subject to change from time to time. The recipient is advised to consult an advisor/ tax consultant prior to arriving at any investment decision.