The Most Authentic Guide on Personal Finance and Investments


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How to make your child a crorepati?

Forget KBC. Forget lottery. Forget Deal Ya No Deal.

Luck plays a very big role here. So only a few, among millions of parents, may succeed thru' these means.

Whereas, I wish (practically) everyone of you, could write a cheque of Rs.1 crore for your child.

Suppose your child is around 5-7 years of age now. And you want her/him to be a crorepati when s/he turns 21.

Discussed below are FIVE alternatives, on how you can do so:

Option 1 : Fixed Income Product
This includes Bank Fixed Deposit, Tax Free Bonds, PPF, Debentures, NSC, etc. which give you a fixed rate of interest.

Invest around Rs.28,500 per month for 15 years in tax-free options such as Tax Free Bonds and PPF. Thus, you will be able to gift Rs.1 crore to your child on her/his 21st birthday.

However, if you fall under the 30% tax bracket and you choose taxable products such as Bank Fixed Deposits, NSC etc. you will have to invest a higher amount of Rs.35,000 per month for 15 years.

[Must Read : Blind Faith In Fixed Deposits Is Destroying Wealth]

Option 2 : Gold
In addition to fixed deposits, Gold is an all-time favourite investment among Indians. More particularly, women start accumulating gold for their daughters' wedding, right from the time they are born.

If gold is the option you desire, to make your child a crorepati, you will have to buy almost Rs.31,000 worth of gold every month.

One positive feature about investing in gold, is that there is no tax while it appreciates in value, so long as you don't sell it (which anyway is not your intention). Whereas interest income from FDs is taxable on an annual basis, even if you continue holding the fixed deposit. Of course, giving away gold or money to your child as a gift, is tax free... to both you and your child.

However, keeping so much gold at home is a huge security risk. You can try bank lockers (but they too are somewhat risky). Ideally, you should look at Gold Exchange Traded Fund (Gold ETF) as it scores over jewellery, provided you want to take the crorepati-via-gold route.

how-to-build-a-corpus-of-rs-1-crore
Build a corpus of Rs.1 crore for your child, while s/he is shaping her/his future.

Option 3 : Insurance
This is another most-trustworthy investment option among Indians. Insurance ranks at the top, whenever a parent thinks of saving money for her/his child's education and marriage.

It would require around Rs.32,500 as monthly insurance premium, to receive Rs.1 crore on policy maturity, after 15 years.  

The amount required is again pretty steep. But the good part is that the maturity amount is totally tax-free.

[Must read : The Best Insurance Policy For Your Child]

Option 4 : Property
Again, one of the preferred investment option among Indians.

A property worth Rs.25 lakhs is likely to appreciate to around a crore in 15 years.

Say you make a down-payment of Rs.5 lakhs and avail a 15-year home loan of Rs.20 lakhs. This works out to a payment of monthly EMI of around Rs.21,500.

In 15 years, the loan will be repaid and the property would be yours. In 15 years, the property would be valued at around Rs.1 crore.

Again, no tax unless you sell it (which is not your intention). Again, gifting it to your child is tax free.

Option 5 : Balanced Mutual Fund 
Given the long 15 years' time-frame, I would have preferred a portfolio of 100% equity-oriented mutual funds. But Indians don't like the uncertainty in the returns from equity. And they (wrongly) percieve it to be too risky. Safety is their prime concern, especially when it concerns their children.

So, I offer a balanced approach... a balanced mutual fund. This is a simple fund that invests around 75% money in equity and 25% in debt. I think this is a fair bet and even the risk-averse investors could surely consider it.

The returns are absolutely tax free.

And, the best part...
... it is relatively much more affordable than all the other options.

Just Rs.19,000 per month would give you Rs.1. crore for your child on his/her 21st birthday.

In fact, the difference is HUGE...
... for "almost" the same amount of money that would give us a crore for one child from FD, insurance or gold, this gives us "nearly" a crore each for two kids


MOST IMPORTANT
The above numbers are based on the economic trends, interest rate scenario, yields etc. in the recent past. Short term volatility in these parameters may get ironed out and hence not matter much. However, drastic long-term developments could affect the above numbers.

But this uncertainty should not deter us, from pursuing our dream to make our child a crorepati.

Rather, we should start with whatever we have and keep making appropriate changes from time to time. It's like driving in the dark. The headlights enable us to see ahead, only up to a few meters. Yet, we can safely travel thousands of kilometers. That's what investing is also all about.

So, what are you waiting for...

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