Let's take education as a case. After paying Rs. 2,000 to Rs. 5,000 per month in play school, a father takes his kid to the best private school in town. This school makes him forcefully pay huge sums of donation, though donations were meant to be paid wilfully. After this donation which runs into a few lacs of rupees, every month the parent is required to pay tuition fee of his/her kid, which may be again around Rs. 2,000 to Rs. 4,000. And, if the parents have chosen an air-conditioned, well-built school with all upgraded infrastructure facilities, then the monthly outgo maybe around Rs. 7,000. But what can a father do, after all it is about the child's future. Or is this really the case? Maybe something could have been done. Some financial planning and some investment based on such a plan, perhaps? A cynic says this of planning - "planning might not yield best results but saves from the worst ones!".
But what is special about investing for kids, one may ask. After all it is just money to be saved and invested. However, investment is not just putting aside some x amount of money in a trading account with a broker and have it invested in any x-y-z security.
Broadly speaking, investment can be said to be a function of purpose, duration and risk tolerance. Let us put this in perspective with investment for children.
The purpose for kids could be - secondary education, higher studies (in India or abroad), marriage, house, other facilities like car, etc. So one has to enumerate what all is required to be catered to. Each of these items has a cost - some cost many more times than other. Take higher studies for instance. A typical coaching institute may charge anywhere between Rs. 1-2 lacs for say, an IIT JEE exam. A good car may cost Rs. 5-7 lacs. Providing a house is another challenge in itself with housing prices increased exponentially in past five years, especially in metros like Mumbai, Delhi, Bangalore, Hyderabad, Haryana and so on. A simple 3 BHK flat in a nice locality now is a matter of about Rs. 50 - 90 lacs. But these are current cost estimates. Imagine what these figures will grow into when inflation adds in them for so many years. Going by our above estimate for cost of car of Rs. 5 lacs and an inflation estimate of say 5%, the cost after 25 years stands at Rs. 16.93 lacs. By now, one must have figured out that it is not a cake walk preparing for such needs.
For more info- http://in.finance.yahoo.com/news/Ramping-financial-plan-child-bankbazaar-3303461070.html
