A mother is not only for taking care of the house, the kids and wellbeing of the rest of the family. She also is the architect who plans the future for a family that beams with happiness and success. She cannot only devise a plan but also needs proper support financially, physically and mentally to make it happen. Not all moms are financially sound with terminologies or ways to invest and save. Being able to manage finance with existing funds is entirely different from being able to save for the future with maximum benefits. Investing in mutual funds is a great way that moms can plan finances and make the future plans happen with ease. Here is a list of problems that moms face and how mutual funds can help in overcoming them.
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Providing a bright future for their kids is every parent’s dream. Seeing their child lead a happy, peaceful and successful life is all what they want and is for what they strive hard and toil themselves.
The Government of India has come up with a lot of schemes that help parents save up for their children’s bright future. The schemes of the Government that can be taken up in the post offices are the most safest bet where you can invest in.
A wise decision would be to know the details from different sources to see which would be the best scheme to invest in.
The schemes can be chosen based on the purpose for saving intended be it for a male or a female child. Moreover these plans offer high interest rates.
Visiting the nearest post office will help in knowing more about the schemes and the eligibility procedures for the same.
Here is a brief about the different schemes that are available.
Public Provident Fund (PPF)
A scheme that aims at saving taxes, this comes with a locking period of 15 years which can be extended to another five years. Requires a minimum deposit of Rs. 500 to maximum of 1.5 lakhs.
Post the third year the depositor can also avail loan against the investments. The interest rate for this scheme is determined by the Government with respect to change in market conditions. The current interest rate is 7.1 which is subject to changes.
It is a great option to invest in this scheme for your minor child, because they would be able to operate the account once the lock in period gets over and they become majors. They do not have to wait for the entire lock in period to withdraw the amount.
National Savings Certificate (NSC)
The scheme comes with a minimum deposit of Rs. 100, a tenure of five years and an interest rate of 6.8. There is no maximum limit. Investors can claim tax benefits upto 1.5 lakhs in this scheme.
The government revises the interest rate yearly so keep a check on this. Transfer within post offices is hassle free in case of work transfers.
Recurring Deposit (RD)
Recurring deposit, RD is a scheme that enables monthly investments. The tenure is five years and cannot be withdrawn. The minimum amount is Rs. 100 and no limit on maximum amount.
Term deposit (TD)
The term deposit requires a minimum investment of Rs. 1000. Has the benefit of claiming tax exemption. The interest rate is subject to changes every quarter by the government based on profit of government securities and other factors. Reinvestment of interest rate post one year can yield higher amount of returns. The interest can be redirected to the five year recurring deposit scheme as well.
Post office Monthly Income Scheme
The scheme offers monthly income to the parents. Can be opened only if there is a savings account with the post office. The lock in period is about five years. The scheme enables premature withdrawals with penalties. The minimum amount to invest is Rs. 1500 to a maximum of Rs. 4.5 lakhs. The government fixes the interest rate every quarter.
Kisan Vikas Patra (KVP)
The scheme comes with a lock in period of 30 months with a minimum amount of Rs. 1000 to no limits in the maximum. However if depositor wants to invest more than 10 lakhs an income proof is necessary. Offers high guarantee income with higher interest rates. The depositor must be aware that the interest rate is taxable .
Savings account
Post office savings account is similar to the one in banks. It offers a 4% interest. Has a minimum deposit amount of Rs. 500 and no maximum limits. The minimum balance to be maintained is Rs 50. Enables any time withdrawal of amount.
Sukanya Samriddhi Yojana
The scheme is specifically for girl child. Can be opened before attaining the age of 10. Comes with an interest rate of 7.6 for the entire tenure. The child can get maturity benefit post 21 years. Requires a minimum deposit of Rs. 1000 to maximum of 1.5 lakh. The scheme is flexible to be transferred anywhere within India .
Ponmagan podhuvaipu nidhi
This is a scheme offered by the Tamilnadu Government for male child and can be availed only by the people of the state. The scheme is eligible for kids under 10 . The minimum amount to deposit is Rs. 500 and maximum of 1.5 lakhs. The rate of interest is 9.7 which is subject to changes. Tax deductions to this can be claimed.
Choosing to save early is a wise decision. But planning where to invest needs a lot of market research and thinking. These schemes since they are part of the Government have security factor on the higher end which enables them to be one of the best choices for parents to save for their kids future.
Best ways to invest for child educationChild education investment
The average Indian household’s major expense has been skyrocketing even though we do not see the same trend in inflation. Higher education costs have been rising ever since and it is one of the major cash outflows of Indian families.
Be it a four year engineering or a five year medicine or a three year art degree the rise in costs haven’t spared any of these sectors. Gone are the days when they used to say we cannot afford engineering or medicine better to take up arts and science.
The low competition and the lower rates at Government institutions made it easy for the previous generations. But today the tough competition to get admitted into quality governments institutions is making people sought costly private institutions forcibly.
Though in the near future we might have some of the global majors come down to our country the education costs are still going to be on a higher scale. Change in lifestyle and the inflation also has an impacts on the higher education costs.
Our way of Living definitely influences the decision we make on where we send our kids to get educated. Quite often the trend that is seen is children being brought up under affluence predominantly reject being admitted to Government institutions due to the minimal infrastructure facilities.
The burning question in every Indian parents mind is that will they be able to afford the higher education for their wards. Will they have any problems on the funding for the choice of higher education chosen by their children.
The answer would confidently be a ‘yes‘ if they are an early bird in investing and have a clear cut understanding of taking the right steps on where to invest.
Here are the most commonly faced challenges by parents and ways to overcome them when it comes to funding for higher education.
Early bird
Beginning to saving early is an obvious solution . This will not only help in yielding a large sum but the money will also gain from the compounding power. A sip investment for 18 years in equity with an amount of 9000 giving a 15% return is not going to make one crore a daunting amount.
Compounding needs to work on longer period because the inflation rate of education seems to be very high . So saving as early from when the child is three months is one of the doable solutions yielding great results.
When you start late you are not only going to see lesser returns but also can ruin your plans on other financial goals. Starting at 40, isn’t going to become a successful plan because it can definitely land you in a short fall of the amount that is needed.
The Indian household immediately plunges the retirement savings to manage the expense which is a risky move because this will make you dependent on them once you get old. Employment nature is changing because young workers who are energetic replace the one’s at 40 because of their latest skills and this apparently makes it necessary to start investing early.
Short term helps play safe
If the time you have is less than five years then relying on the lower return fixed income instruments is the option. But on a positive note they offer guaranteed returns and safety. These factors make it important in short term.
Though these options seem fairly safe it isn’t fine to do it on a random basis. When you invest in these debt instruments you will need to check that liquidity shouldn’t be a problem .
In this case the much lauded PPF may seem to be a great option but if the money is needed in 3-5 years this idea wouldn’t work.
The tax savings bond on the other side looks to be attractive but poses a reinvestment risk. Always safe to opt for the cumulative option because the interest payout every year, will need to be reinvested in lower interest rates
Choosing the right option that suits your need
Not only does starting early important, but investing on the right place yields good difference.
Equity mutual funds have delivered annualized returns of 16.5 percent in ten years. But this is not everyone’s cup of tea.
Indians have a high urge to save and invest but they still look to the side of safety. If 15-18 years is the time you have for the child’s higher education then equity funds would be the right place to start investing.
The return volatility is flattened out since this is a longer time period. So if you have the will to risk you can go to allocate even 75-80 percentage of the portfolio here. Diversified equity or stocks can be great for investing to tackle the inflation rate of higher education.
The remaining can be put into ppf, fixed deposit or tax free bonds which are safe.
Portfolio review
A yearly review of the portfolio is a must , once the portfolio is in place. Keep a check on the amount required for goal. In this case the two main factors would be tution fee and cost of living. If any one of these rise up you will need to rethink the inflation rate.
Keep checking whether the portfolio is on the track to meet the goal. If there is a downfall you may need to increase. This is also applicable of there is a salary increase.
Keep a check on the fund performance. If a fund lags don’t jump to sell off rather stop sip and invest in in a better performing fund. Analyse the fund and understand the reason for its down performance. Make a decision after analysing 3-4 quarters.
Make sure to rebalance the portfolio at the end of each year. Sell an outperforming fund and reinvest in underperforming funds.
Goal approach
The long term investment process is not static. Start shifting out money to safety of debt if you are in 10-15 year equity investment.
A systematic transfer to short term debit fund would be apt. When the savings is for a crucial goal be sure to act conservatively. The child’s admission to college should be in mind and a down performance in the stock cannot do a spoilsport in your child’s future.
That Madras Mom 