Secure your childs future with planned investments

What is notable is that he has created for Riya assets worth R 6.75 lakh. First let us understand what he did to achieve this and why he did this. Before she was born he put aside R 6.25 lakh for her. What did he do? He had investments in his name and decided that some equity shares and mutual funds now belong to Riya. To make things formal he opened a bank account in her name and then transferred the money there and continued with the same investments. So far he has made a profit of R 50,000. What is interesting is his grand plan,which is to gift her R 2 crore by the time she turns 25.

He did not need any mathematician or agent or broker to tell him that expecting a compounded rate of return of 15 per cent p.a. for investment in shares and equity mutual funds R 6.25 lakh would become approximately R 2 crore. It is that simple!

Now lets get into his mind and explore his logic.

First he wanted to gift her R 2 crore and with his assumptions of 15 per cent returns,which is realistic. There is no chance in my opinion that this will not happen.

Secondly,he wanted to create a level of funding by which,he would never have to dip into his pocket ever again for Riyas financial needs.

Thirdly,he hopes he will be able to meet all her expenses till she gets married,from his ongoing salary but just as a hedge in case he is not able to support her she should not suffer. This is a very important point; this whole planning is just a backup! So,he took away a part of his investments,R 6.25 lakh to be precise and labeled it as This belongs to Riya.

You might want to know why R 6.25 lakh? And no other figure? This is a worst case scenario figure. Here is a quick snapshot of some cashflows he worked out considering 8 per cent inflation,and assuming a return on investment of 15 per cent p.a. compounded.

1. He expects to spend about R 1.5 lakh for her Class 10 and R 3.5 lakh for her Class 12 i.e. when she reaches 15 and 17 years respectively.

2. After that he expects to spend amounts ranging from R 4- 4.7 lakh each year over for the next 4 years i.e. a total of R17 lakh from age 18 to 22 for her professional education.

3. For her post graduation he has made a calculated provision of R 42 lakh approximately.

4. He expects to spend R 60 lakh for her wedding.

5. In all he expects to spend R 1.24 crore.

6. And heres the best part if he manage to fund all this on an ongoing basis from his own salary then he need not withdraw anything from this fund and he will be able to gift Riya R 2 crore at age 25. That is awesome,isnt it?

Riya can use it the way she likes. If she is as astute and wise like her father she may be able to give her child about R70 crore when her child turns 25. Can you see the power of money when it is invested well?

Coming back to reality it is indeed true that childrens future will cost a lot of money and if we do not have a multi-pronged approach like Rajiv things can get a little messy in years to come. I also know that most people will discard the above as unreal and unachievable. But then over time their kids will make them realise that buying those glossy policies was a seriously bad idea. Anyway it will already be too late then and there will only be heartburn,frustration and disappointment between parents and their children.

You would like to provide your children the best that is possible. Rajiv realised early that not a education or child based product will ever help him achieve his objective,so he completely bypassed all insurance policies and chose his strategy to be shares and equity mutual funds. A wealthy friend of mine bought a property. I liked his idea too just as much as l liked Rajivs idea of education planning. These people truly want to give their child a great future,financial security,want them to enjoy life and that they do not have to compromise on anything.

Author is Director 8211; Transcend Consulting

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