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Budgeting and planning
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MUMBAI: “Every child is special.” If you recall, this was the famous tag line of the Oscar nominated Hindi movie, Taare Zameen Par. But if you i
ndeed have a special child, a victim of a mental/physical handicap, the parent’s responsibility doubles. Especially when it comes to finances, parents have to make higher provisions for a special child given that the little one may never be able to earn a living for himself.
“When you think of financial planning for a child, the two major expenses are education and marriage. When it comes to a special child, over and above these conditions, you may have to provide for the income for the entire life of the child. More than the savings, it is difficult to arrive at a ballpark figure to take care of your child, as it may run into over 50 years of planning,” said Swapnil Pawar, financial advisor and director at Park Financial Advisors.
Even if the child could eventually generate income based on his abilities and skill sets, retirement planning should be done in a manner that the child has sufficient means of income through alternative sources.
“However, the margin of error will be significant. For example, if the figure works to Rs 50 lakh, then probably you have to save over a crore to meet your child’s expenses as things can drastically change in 5-6 decades. So, the modality of income generation can be complicated,” Mr Pawar adds.
Where should parents invest?
The investment plan will vary from family to family based on their overall financial situation. There is no silver bullet here. Asset allocation is key and knowing the kind of corpus and returns that you would need for your goals is paramount, experts say.
“As a general rule, a portion of the portfolio should be allocated to equity and this portion could be higher considering the time horizon in such cases (for retirement goal: parents as well as child’s) is more than 30-plus years. Parents should also have exposure to real estate (not as an investment, but as a residence),” said Amar Pandit, a Mumbai-based certified financial planner.
If you have two children, then you should ideally invest in a residence for your special child as housing loan EMI/rent is the biggest expenditure in an individual’s life-time.
“Debt can be added through PPF, EPF and more importantly, LIC’s Jeevan Aadhar (for special children or dependents). This policy provides for guaranteed additions at the rate of Rs 100 per rs 1,000 sum assured for each completed policy year and is a good option parents must consider,” he says.
Equity should be the primary engine for growth. A term plan should be utilised besides Jeevan Aadhar (debt & life insurance) to ensure that there is substantial cover available. Please don’t look at returns, but look at the sum assured that you will get from the term plan. You should strike a good balance between Jeevan Aadhar and a term plan based on the cover that you require and premium that can be paid, Mr Pandit adds.
How to form a trust?
Setting up a trust could be a viable idea, especially under such circumstances. As no one can predict the uncertain future, it pays to have a set of professionals who transfer your money to the child in your absence. There are different ways to go about it. You can decide how you want to invest the money or just appoint a credible financial advisor who can manage your investments. Then you can also decide how much and in what ratio your child should get the money from the trust at different stages of his life.
Also, the concept of setting up a trust is not limited to an affluent individual. You can even set up a trust with as much as Rs 10,000, as Kartik Jhaveri, a Mumbai-based certified financial planner said.
You can form a trust any time. The first step is to frame a trust deed with legal help. The trust deed defines the objective of the trust, includes the names of trustee members, powers and rules and regulations pertaining to its functioning.
The key is to appoint trustee members who are younger to the parents. This may take care of the possibility of the trustee’s death before the parents’. However, you can never rule out the possibility of premature death, so two trustees would be better. You also have the option of being one of the trustee members.
Facts you should know:
Parents can avail of deduction under Section 80DD for Rs 75,000 in case of severe disability. This expense can be towards any expenditure for medical treatment, training or rehabilitation of a dependent with disability. This deduction can also be claimed if paid for schemes framed by LIC or any other insurer and is approved by CBDT.
The National Trust Act enables the parents of special children to claim guardianship even after they turn 18, especially if the child suffers from cerebral palsy, mental retardation, autism or multiple disabilities.
ET............
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Good Article usefuk for all who dont know about RTI......
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Most of TV analyst including Mukherji are going to betary you Mukherjee of CNBC included. Because you are not aware whether they are recomending anything based on fundamental or technicals. At time you ask for fundamnetal and answer is technical. There is no liability or responsibility.
All dreams of govt., FM included of 7-7.5% GDP growth appears hollow. They are going to revise these estimates in near future. Govt. is very slow to respond to market dynamics and too much pre-occupied with inflation. although we are likely to enter deflation mode very soon.
Todays action by RBI may or may not show on indices on Monday. ...
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I do not have any investments and i am earning 25000 INR per month. Where should i start my investment with ? I do not have insurance or any kind of medical insurance. My age is 25 and i am planning to get married in a year or so...
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Good Article.
A lot can be learned from this....
In reply to:
Letter from Grandpa
Posted by :
kentmss
Read this, it is very interesting.
An open letter from Grandpa
LATELY, I have been thinking a lot about the Lehman crisis . Spending money that they didn`t have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US.
When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter`s hand in marriage to a man with loans.
But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly installment). Today, you can buy everything on EMI - a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts!
Anyway, coming back to what caused the crisis. Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 3 lakh), you will go bankrupt. This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn`t it suicidal and simply foolish?
I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution.
But there are a few lessons that we can learn:
1. Live a balanced life and avoid overspending.
Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest.
2. Not all loans are bad. Loans that are `need based` (home loans, education loans) can always find a place in your finances against those that are largely `want based` (personal loans, car loans).
3. Borrow only if repayment is financially comfortable.
A thumb rule: Keep EMIs within 30 per cent of your monthly income
In that respect, there is one American who I really respect – Warren Buffet. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular `middle class` life. If that`s all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren`t even essential?
India still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don`t need.
HDFC Mutual Fund people sent me this interesting letter.
regards,
Srikanth shankar Matrubai 
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Read this, it is very interesting.
An open letter from Grandpa
LATELY, I have been thinking a lot about the Lehman crisis . Spending money that they didn`t have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US.
When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter`s hand in marriage to a man with loans.
But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly installment). Today, you can buy everything on EMI - a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts!
Anyway, coming back to what caused the crisis. Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 3 lakh), you will go bankrupt. This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn`t it suicidal and simply foolish?
I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution.
But there are a few lessons that we can learn:
1. Live a balanced life and avoid overspending.
Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest.
2. Not all loans are bad. Loans that are `need based` (home loans, education loans) can always find a place in your finances against those that are largely `want based` (personal loans, car loans).
3. Borrow only if repayment is financially comfortable.
A thumb rule: Keep EMIs within 30 per cent of your monthly income
In that respect, there is one American who I really respect – Warren Buffet. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular `middle class` life. If that`s all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren`t even essential?
India still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don`t need.
HDFC Mutual Fund people sent me this interesting letter.
regards,
Srikanth shankar Matrubai...
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sir,whats the meaning of buy back.can i sell my stock at buyback price....
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When the proposal was made by the Government that it will allow pension funds to invest in stock markets (with a limit of 5% of course) there was vehement opposition from the Left MPs.
How correct was their apprehension that it may not at all be prudent to allow Fund Managers to invest the hard earned savings of workers and while collar personnel alike!
Pension Funds should NEVER be allowed to play in the stock market for the simple reason that while an individual can stake his life time earnings in the market in the make or break game, it will not be in order to trust the fund managers of pension funds to be cautious in their approach in selection of securities for investment. The behaviour of CanBank Mutual Fund and UcoBank in investments in the market in 1992-1998 should be an eye opener to all concerned....
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Dear aaaaa,
Insurance is meant for Protection mainly.However ULIPS may give more Returns ( Tax Free ) than FD in long Run ( 20-25 Years).
MF May give Better Returns if Invested intelligently & Regular Monitoring.
Few EXTRA Intelligent Persons may get Excellent Returns by Investing in GOOD Shares & Actively Profit Booking.
Average Investor may get GOOD Returns or may LOSE the part of Capital
also.
There can not be COMMON Formula for ALL .
P.C.Sharma...
In reply to:
which one is good
Posted by : aaaaaaa
which one is good for more return from this MF,Stocks,insurnace or FD ?
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good time for new investor to invest for long term @ discount price buying...
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I earn Rs 15000 per month. I have no expense as I live with my parents. I need a plan of action on what I need to do with this money?...
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Depends. FD gives you 10 per cent return. So, you put your money in now and forget about it for a year. You`ll get your principal amount plus interest. I don`t think insurance is not an investment product. So stay away from it. As far as, stocks and MF are concerned, it`s a good time to buy. If you have 3-4 years time and you can file away your money for that long, then both these would get you good returns....
In reply to:
which one is good
Posted by : aaaaaaa
which one is good for more return from this MF,Stocks,insurnace or FD ?
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one should go for investing in stock market or still wait for more correction...
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Hello
I am planning to buy gold bars worth 1 lakh. As of today the GOLD Price as per the market is 11446 but when I check the price of the gold bars offered by different bank its ranges between 12800 – 13681(that too without sales tax) per 10g. Why do we have such a price difference? From where would you suggest buying gold? Will the price of GOLD fall further?
Thanks
Deep
...
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which one is good for more return from this MF,Stocks,insurnace or FD ?...
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