I feel that investing is a lot more about emotions than it is about numbers, and it becomes even more emotionally charged when you think about investing for your children.
I regularly get emails about investing for children and there are two common things about all such emails.
The first one is the use of the word “best”. I’ve never seen someone write in to ask about a “good investment” for their children. It has to be the best investment, how can it be anything else?
The second thing I notice about these emails is that they generally refer to a children’s plan or a product that has the word “children” in it.
I think there is a general perception that plans or products that have the word “children” in them are significantly different from other plans, and only these plans should be used when you’re thinking about making investments for your children.
I don’t think there is that much difference though, and I’m fairly certain that if I made a table with the features of 5 plans and didn’t disclose which ones were children plans and which ones were other ones – it would be quite hard even for financial advisers to tell one from the other.
At their core, all plans or products invest in a few asset classes, give some insurance cover and have a certain time frame for maturity.
Instead of being swayed by the adjective of the plan you need to look at the components of the plan.
It’s a great idea to invest for your children and an even better one to start early, but you don’t really need to rely on any children’s plan for that. You can make that plan yourself with a little common sense and the right research.
Everyone knows what the big expenses are going to be – schooling, higher education, perhaps studies abroad and wedding, and if you start planning early and allocate money specifically for a purpose and invest in an asset accordingly you can build a good base for it.
For example, a Rs. 1,011 SIP yields Rs. 10 lakhs in 20 years if the money grows at 12%. You can put this relatively small amount away every month in a balanced fund with the idea that this will be used for higher education, and since you’re not going to need it for a very long time period you can ignore the volatility of the market and keep accumulating the funds. Similarly you can start with goals and work backwards to find a product that suits your need for any other goal that comes to mind.
Plan first, and then buy the product that suits that plan, let the dog wag the tail, don’t let the tail wag the dog.