[LordSharan]

Mine are 1 year old.

1. SIPs for children (short term and mid term major expenses - upto graduation)
2. Recurring deposit (short term and mid term major expenses, to hedge #1)
3. Real Estate for their long term expenses (post graduation, marriage etc.)

Minor expenses are taken care from savings account.

[hothatchaway]

PPF/SSY are limited by the amount that you can contribute, many of us max out on these but we need to calculate the overall difference the returns on these schemes make on a portfolio level. Did someone mention the option of VPF contributions, where the only limit is the basic pay and of course the 2.5 lakh ceiling, after which the employee's contribution becomes taxable?

I have not fully studied how the post tax return on VPF compare with other debt schemes, but given generous corporate salaries, one may be able to get post tax returns of no less than 6.5% (assuming 9LPA employee contribution, EPF+VPF at a 30% tax bracket) which is far better than the 4.9% for FDs (30% tax deducted from 7% returns) It is likely to be more if the VPF deduction happens pre tax and the tax is only on accumulation.

I agree with Vijaykr above that this compounding logic for MFs is a myth and while the overall return on equities look very promising currently, things will settle down as the economy matures. Return on passive investment in MF is unlikely to outstrip the returns offered by debt by a significant margin over a long period of time.

[raksrules]

People investing in Mutual Funds and saying "Compounding" need to understand that there is nothing called compounding when it comes to mutual funds. Each unit of your fund has NAV and that increases or decreases. Nothing is compounded like it happens with FD, PF / VPF, SSY, PPF etc.

Starting early is good but that is just doing as early as you can to generate potential good returns over long term.

Originally Posted by hothatchaway

PPF/SSY are limited by the amount that you can contribute, many of us max out on these but we need to calculate the overall difference the returns on these schemes make on a portfolio level. Did someone mention the option of VPF contributions, where the only limit is the basic pay and of course the 2.5 lakh ceiling, after which the employee's contribution becomes taxable?

I do invest in VPF along with my regular PF in such a way that my contribution is just under 2.5L so it is not taxable (the amount over 2.5L I mean). I do this only due to compounding which can be good I feel and this is not my primary investment and I can always stop VPF when I want.

[sunilch]

Originally Posted by DDIS_RE650

Small Cap and Mid Cap two SIP dedicated for both kids. We will not touch till they are 25+, it is our responsibilities for their higher education and wedding.

Originally Posted by jensjoseph

I started investing for my children from the time I found out we were expecting. My goal is to invest till they're 18 and as we get closer to that age, decide the next course of action. The plan is to continue investing till they're 25 or so, but that depends on a number of factors after they start graduate school.

Higher education expenses shall come up before they turn 25. How about the expense that you shall need when they finish 12th grade (say around 18 years of age)? You plan to withdraw as needed and continue to invest before final stop/handover around 25?


Question for readers:

What is the plan for the on-going expenses related to education? Schooling has become expense now and we all want to send our kids to best schools possible, based our our capability. Education, since now is a commodity, has all options - from subsidized education at govt schools (say 20-30K per year expenses per child) to CBSE/ICSE (100-150k per year per child) all the way to IB (7-10L per year per child).

Assuming once chooses the middle path (CBSE/ICSE), how are you all planning to cover the ever increasing annual education expenses?

[jensjoseph]

Originally Posted by sunilch

Higher education expenses shall come up before they turn 25. How about the expense that you shall need when they finish 12th grade (say around 18 years of age)? You plan to withdraw as needed and continue to invest before final stop/handover around 25?

Thats right; the plan is to slowly start withdrawing when the kids reach 15-16 years of age and be prepared to pay for the expenses of the program they choose to attend/go for at 18. By then we would know how much the 3 or 4 year program would cost thereby allowing us to decide whether we want to continue to invest till 25 or so.

Again 25 is a number we hope to get to, but not necessarily want to. If the kids are doing well, then we might re-consider investing till 25.

Originally Posted by sunilch

Question for readers:

Assuming once chooses the middle path (CBSE/ICSE), how are you all planning to cover the ever increasing annual education expenses?

This is a good question and I add about 20% to the next years fees and save up every year. It may or may not help everyone, but it works for me. More importantly, 20% is the worst case scenario and I still have some left over cash after paying the fees.

[nikvint]

Long post.

Being an investment advisor, I would like to throw light on various instruments of investment and their positive and negative aspects 'for common man.'

1.REAL ESTATE:Not for Common-man, So not discussing in detail.

2.COMMODITY:
# Common man understand only GOLD & SILVER as commodity. There are other commodities as well. But we will not touch them.
# Gold-Silver gives 6-7% return in long term. In line with depreciation of Rupee against dollar. Rate of Return in Dollar term is negligible.
# High liquidity
# Easy to buy, hold and sale.
# Fast price movement may occur due to JIO-POLITICAL situation, in short term.
# Normal rate of tax applicable on gain.

3.DEBT INSTRUMENTS:
# Bank FD, Corporate FD, Govt & Corporate Bonds, Post office schemes, Life Insurance policies, EPF/PPF etc.
# Safest of the lot. Your investment value never depreciates.
# Average rate of return is 7%,
# Easy to buy, hold and sale.
# Taxable and non-taxable, both options available. In case of taxable instruments, taxed at normal rate. Calculate post tax returns as per your tax rate.
# Liquidity depends on product.
# Best suited for short term investment need and for those who need income from their investment.
# Rate of return reduces with the development of the economy. 0% to 2% in most of the developed countries. We are at 7% from 12% in 20 years.

4.EQUITY:
# Most talked and discussed investment option.
# High Risk High Return situation
# Linked with Market so your investment may depreciate in short term if market is down. But best tool for wealth creation in LONG TERM.
# Average rate of return is 15%, but in LONG TERM. With proper study and guidance this rate of return can be increased to 18-20% in LONG TERM.
# Direct equity is risky and will burn your pocket very badly, if you are not clever and not connected continuously with the market. You have to be lucky to generate good return. Not everyone’s cup of tea.
# SIP is BEST overall tool for common-man for wealth creation through equity in LONG TERM. Rate of Return is always better in SIP then direct equity, if chosen wisely and updated time to time.
# Patience, Time and Persistency are main ingredients for huge wealth creation in EQUITY- WARREN BUFFET. E.g. Just Rs. 10k monthly SIP in equity fund done for 30 years @ 15% CAGR will create a wealth of 7.00 cr. @ 18% CAGR, your wealth will be 14 cr. Last 30 years rate of return for Sensex is 15%.
# With online everything, easy to purchase, hold and sell.
# Special rate of Tax: Long term @ 10% & Short Term @ 15%. So lowest tax rates.
# Most liquid form of Asset. In three days, you will get your money back.
# Not suitable for short term. Minimum horizon should be 5 years. Longer is always better. You get benefit of compounding in long term.

DEBT V/S EQUITY V/S INFLATION:
Wholesale inflation is around 6%, but our common-man inflation is more than 10%. Check your expenses on yearly basis and you will get the idea. So any instrument who generate around 7% yearly return is illusion that you have earned money. Actually you have lost 3% in purchasing power in a year. So your investment must earn more than actual inflation to achieve your financial goals. And that can be done through EQUITY only, again in LONG TERM.

My take: DEBT INSTRUMENTS are INCOME GENERATION tool and not wealth creation tool. So I would not suggest anyone who is YOUNG, generating income and planning for long term wealth creation, should not go for DEBT products. You can have some liquidity in the form of FD for your short term/emergency needs, for the horizon of less than 2 years. You must be in EQUITY to create huge wealth in long term. It will give you money at all important stages of your life; Buying home, Child Education, Child Marriage, Emergency Fund, Retirements and Legacy to your next generation. Just follow simple rule: PATIENCE & PERSISTENCY for LONG TERM.

INVESTMENT MIX (STRICTLY MY TAKE):
# Aggressive: 75% in equity, 15% in Debt, 10% in Gold/silver
# Moderately aggressive: 60% equity, 20% in Debt, 20% in Gold/Silver
# Conservative: You make your own mix.

Hope this long post will give some value to those who are young and planning for wealth creation.

@ Mods, this is my first post. I have repeatedly used words in capital letter to make it more impact full, with the intention of alarming readers. Please make needful correction, if needed.

[dearchichi]

As many have done, we (my wife and I) haven't invested separately for our daughter apart from a PPF and SSY account in her name. However, I have generally favoured contributions to debt and equity mutual funds over these assuming they deliver better inflation and taxation adjusted returns across 10 or more years of investments. Her education and wedding goals would be from our general savings/net worth.

She's 12 now. Upcoming expenses considered are:

- coaching for competitive examinations, should she show any interest. A four-year course beginning 8th standard costs about Rs. 5L.

- her undergraduate courses. Four-year private engineering courses cost about Rs. 28L today (BITS), and inflate at about 12-15% a year. I won't be able to afford costs of medical colleges significantly higher than this amount. These funds should cover any non-engineering and non-medical courses too.

- her post-graduate courses. These need to be funded by herself.

- her wedding. We have allocated a token amount that would finance a typical middle-class wedding today, which usually inflates at 8-10% a year.

- I haven't thought much about the value of her inheritance.

- access to funds: my daughter has PPF and SSY accounts in her name. All mutual funds are held jointly by my wife and myself, with our daughter as the nominee. Our (my wife's and mine) bank, PPF and EPF accounts have each other as the nominee. Therefore, there shouldn't be much paperwork involved to access funds in case of an eventuality.

A mistake I rue is to have not opened a separate mutual fund account in my daughter's name. I have no way to transfer our existing mutual funds units to her without a tax hit unless she inherits it. (I don't have ETFs or shares, which can be gifted).

We have very little in FDs owing to their disadvantages. With MFs, withdrawals can be piecemeal, is taxable only at the time of such withdrawals and is taxed only on the interest portion of such withdrawals.

With FDs, the interest is taxed annually and penalties apply for premature withdrawals.

[AMG Power]

The only investment you need to make is to give your kids a good education that you can afford.

Buying a house for them, putting FD’s in their name and generally giving them access to your wealth will have a HUGE negative effect.

This famous quote from the Dubai sheikh has many parallels in real life - some of which I know:

The founder of Dubai, Sheikh Rashid, was asked about the future of his country. He replied, "My grandfather rode a camel, my father rode a camel, I ride a Mercedes, my son rides a Land Rover, and my grandson is going to ride a Land Rover…but my great-grandson is going to have to ride a camel again."

Why is that, he was asked? And his reply was, "Hard times create strong men, strong men create easy times. Easy times create weak men, weak men create difficult times. Many will not understand it, but you have to raise warriors, not parasites."

Add to that the historical reality that all great empires...the Persians, the Trojans, the Egyptians, the Greeks, the Romans, and in later years, the British...all rose and perished within 240 years. They were not conquered by external enemies; they rotted from within.

America and Canada have now passed that 240-year mark, and the rot is starting to be visible and is accelerating. We are past the Mercedes and Land Rover years….the camels are on the horizon.

On another note, there is the situation where wealth created by parents by way of business, flats, land are lying idle and even wasting away as the kids arw pursuing their own future overseas and have no desire to return. So much for creating wealth for kids.

A good education with a little exception here and there and a clear message that your kid will not have access to your wealth will make him realise he has to earn a living / develop the ability to survive (warrior) in this world.

Anything more and you are likely to be breeding a weakling who could turn into a parasite.

[antz.bin]

Everyone, whether born to rich parents or poor, have their own set of challenges. Just because Anant, Akash and Isha are grand children of Dhirubhai doesn't mean they or their children will be weak people or their children will have to travel on bicycles.

Even the children and grand children of the *unsuccessful* Anil won't ever have to travel on bicycles or pump fuel at Petrol pumps like their (great) grandfather.

This is just a narrative that the top 0.001% rich want us middle class people to believe so that they always have a steady supply of cheap workers whose parents didn't have foresight to help their own children.

Your own children are not parasites. They are your legacy to the world taking the human race forward into the future. If you don't let your own children take advantage of you, who else will they take advantage of to move ahead in life?

The times have changed. Competition is fierce. In 1970, my father got a bank clerk job before his B.Com (Hons) result came out. Getting a job through just an educational qualification was easy because very few were educated. As we all know, the situation is slightly different now.

We can always hope that our children will make great use of the education we are providing them and do well themselves. BUT God forbid, If your child is not in the top 1% (99% won't be), he/she will need all the help they can get. It's better to be prepared for this very likely scenario than be surprised by it when it actually happens.

[On4Wheels]

Here is my financial planning for children:

• Fund for higher education – high return investments is preferable because of short investment period (18 years) and known redemption time.

• Fund for marriage and other occasions – high return investment initially and moderate risk investment in later years.

• Emergency Fund – This is the most important fund from the lessons learned from COVID pandemic. As this fund is meant for financial preparedness for such black swan events, it should be low or moderate risk investment and should not be redeemed for any other purposes.

Personally, I do not like the idea of wealth generation for kids. Thank you!

[androdev]

Originally Posted by AMG Power

This famous quote from the Dubai sheikh has many parallels in real life - some of which I know:

I'm not disagreeing with what is being said but you can't be a rich parent and raise a warrior kid driven by "fake poor man's hunger". You will end up with an estranged family and headaches that no amount of money can fix later.

Most such quotes which essentially translate to "money is not important" come from people who have already made a ton of it. Often times, such quotes are made to make the working class feel better. Don't fall for such BS. I remember Narayan Murthy saying his son went to Stanford because he couldn't get into IIT (or something like that) which gave a huge ego boost to all the working class parents who sent their kids to IIT. Who would send their kids to IIT if they can send them to Stanford?! Imagine Mr Murthy kicking the butt of his son to study 24x7 to clear JEE in an attempt to make him a warrior. Or his daughter to clear NEET to migrate to UK as NHS doctor Did Ambani ask his son to bootstrap Jio?

Having said that, I have my own controversial view on this topic of saving and planning. Lol! If I speak, I'll be in big trouble.

[AMG Power]

Originally Posted by antz.bin

Everyone, whether born
……..
when it actually happens.

From my post:

Originally Posted by AMG Power

Many will not understand it, but you have to raise warriors, not parasites.

Warren Buffet has given only $90,000 of his $121.5 billion to his kids. Bill Gates has only given his kids an education, nothing more. About the Indian equivalents, the less said the better.

Originally Posted by androdev

Having said that, I have my own controversial view on this topic of saving and planning. Lol! If I speak, I'll be in big trouble.

And which car would that be? Never did believe all that MN said.

[dearchichi]

Why arbitrarily limit the privilege to education? Providing a good education places one's child ahead without compelling reason.

I think it's in our instinct to set our progeny up for survival in the environment we release them into. Extending such support to other assets too might help this further. I would rather have our daughter explore new, hard challenges rather than putting her shoulder to the wheel at the same problems solved two generations before her, such as housing.

Maybe we need to strike a balance between giving children silver spoons and nurturing a mindset of good sense and education.

[jaysheth]

Originally Posted by Kaydee55

Are you sure for this ?

Yes

Originally Posted by Kaydee55

Few days back, I opened a PPF account in name of my daughter who is few months shy of turning 7 with her PAN number. As per my understanding I can deposit max 1.5 lakhs in my PPF account and same in her's each year.

Only limitation is that for income tax purpose I can only claim deduction for Rs.1.5 lakhs deposited in my PPF. If daughters PPF account is linked to parents PAN then only 1.5 lakh can be deposited combined in both but in our case she got her own PAN.

That's not the correct approach, and you are likely to be penalized if caught. It is illegal to invest more than a total of 1.5 lakhs across your and your children's accounts (as they are dependent and do not have any separate source of income). See this article as an example: https://www.outlookindia.com/busines...kh-news-240185

I know people who have deposited max permissible amounts separately in their children's accounts, and have enjoyed the (illegal) benefits, as systems were not as efficient few decades ago, but it is illegal.

Opening a PPF account for your daughter is fine, would recommend not exceeding the total limit as permitted by the law.

Originally Posted by The Rationalist

As per PPF rules a family of 4, parents and 2 kids can have 4 PPF accounts and the maximum allowed is ₹3 L.

This is correct.

Originally Posted by The Rationalist

The only loophole is by having 4 different PAN numbers and putting ₹6 lakh. If system detects, you will be fined 1% for the excess amount. Depends on your stomach to take that risk. The best way would be to open the accounts in 4 different banks and hope that you don't get detected!

I beg to differ and disagree. Children having separate PAN numbers is no excuse or justification to go against the laws of the land. Stomach to take risks (e.g. investment in mutual funds) is different from doing something outright wrong.

[Kaydee55]

Originally Posted by jaysheth

Opening a PPF account for your daughter is fine, would recommend not exceeding the total limit as permitted by the law.

Seems legit advice, Thanks