How To Plan For Your
Child’s Future Wisely

To plan for your child’s future – education, lifestyle, marriage etc. – you have a galore of investment avenues today. But planning and investing wisely, is no child’s play. 

Simply, saving and investing in an ad-hoc manner may not help. You need to identify the appropriate investment avenues at an opportune time so as to meet your financial goals.

Moreover, you need to strike a right asset allocation balance as you progress towards each of the financial goals set for your children’s better future.

In this guide we’ll explain how to wisely plan for your child’s future:

Let’s get started…


CHAPTER 1: Why Plan For Child's Future!

If you wish to give your little bundle of joy the best education and get him / her married in style, plan for their bright future right from today.

Just the way you plan for their studies during exam and overall development, you need to plan well for all their future needs and aspirations.

Let's see how Arjun and Priyanka are planning for their daughter Meera's future…


Arjun took his 5-year-old daughter Meera to a park yesterday. And while she was enjoying her play time. Arjun was overwhelmed to see that joy, her twinkling eyes and sweet laugh.

Arjun at that moment wished if he could get back to his childhood days. He realised how as a kid he would be fearless and enthusiastic about everything.

While going back home, Meera told Arjun that she wants to become a Sports star when she grows old. Few days back she wished she could become an Astronaut.

Arjun was happy to learn about Meera’s dreams and aspiration. And like any father he wanted to ensure that nothing can come on his way for providing whatever his daughter wishes for. But to do that he realised he will need decent amount of savings which he hasn’t planned for yet.

Arjun came home and shared with Priyanka, his wife that they need to start saving for Meera’s future. They were very much aware about their responsibilities but didn’t knew what kind of planning they require.

While he was sharing Meera’s aspirations with Priyanka he walked down the memory lane of his own childhood.

“Priyanka, I tell you, we used to sit under trees near the college compound and discuss our future plans with one another” he said. He shared many more such memories with her. Priyanka knew him for quite a few years before they got married. She was aware that it wasn’t a smooth journey for Arjun. He had worked very hard to achieve success in life.

Arjun and Priyanka decided not to compromise on the future of their child and work hard to give a solid foundation in her life. But till that day they weren’t exactly sure as to what they exactly needed to do.

After a few days, Arjun co-incidentally met one of his school friend, Rohit at a restaurant.  While discussing about their careers, to the surprise of Arjun, he learnt that Rohit had become a financial planner. Arjun barely knew why there was a need of a certified financial planner. Till then he was taking the advice of a life insurance advisor whom his father had recommended. Arjun had taken a life insurance policy for Meera when she was born. He never wanted Meera to suffer in his life for the want of money.

Arjun checked with Rohit if the policy that he had taken, was good. It was an endowment plan which was labelled as a “childcare” plan. Rohit told Arjun that he shouldn’t buy such products as they are wrongly marketed. This got Arjun slightly worried. Realising this, Rohit quickly responded saying, “No worries Arjun, you have not committed a big amount to the plan, so the impact on finances would be minimal”. Arjun swore on God, he wouldn’t buy such products again.

Priyanka and Arjun saw Rohit again at his office the very next day. They were keen on getting started about their child’s future planning.

Rohit explained them everything right from the ABCD of financial planning. Being content by his effort, they decided to take his advice on all their financial matters from that day onwards. And now the couple is not only determined about providing Meera a good foundation in his life but also know the means of doing that.

If you too are facing the same dilemma, then you would like to read further about Arjun and Priyanka. They have recently found a way out. Today they know how they should go about planning finances for Meera. Not only that, they also have learnt a few more things that they had not even thought about earlier.   

We, at PersonalFN have come across hundreds of such real-life cases where clients seek advice on financial matters. Most common concern couples have is planning for their child’s future.

And at PersonalFN, we tell parents to primarily involve their child in planning exercises as a measure to educate the child on managing and knowing the value of hard earned money.

You may also like: 10 Lessons On How To Make Your Children Money-Wise


CHAPTER 2:Invest Smartly

Investment options are galore while planning for your child's future.

But selecting the right asset mix (such as equity, debt and gold) can be a daunting task.

Moreover, you need to revisit your portfolio regularly as you progress towards each of the financial goal set for your children's better future.


And to set your asset allocation you need to consider factors such as age, income, expenses, assets, liabilities, risk appetite and nearness to financial goals.

And amid all of these, if you have recognised your risk profile and investment time horizon prudently, determining your asset allocation gets simpler.

For example, if you are many years (10 years or more) away from funding your children's professional education or marriage, then you can take a greater exposure to risky asset classes such as equities. This is because you have greater flexibility and opportunity to grow your wealth.

Here it is vital to recognise that while you as an individual may not have a high-risk appetite; since you are planning for your children's future, you should be willing to invest in risky asset classes, as you are many years away from the realisation of your financial goals and thus any setback to the portfolio, can be recovered with sufficient time in hand.

But one needs to re-position the asset allocation to a respective asset class as you progress to each financial goal. So, for example if you are in a situation where your goal is 3 years away, you can incline your portfolio towards debt from equity.

It is important to de-risk your portfolio when there are only a few years left for the goal. So, if the goal is less than 3 years away, you must completely avoid equity or gold, and shift 100% of your risky portfolio to debt / fixed income instruments.

Broadly, the asset allocation could be 60%-70% in equities, 10%-15% in gold as a hedge to the equity exposure and the balance in debt and fixed income products. But as cited earlier, you got to review your portfolio and re-balance the allocation, whenever required.

Planning and execution are the important parts in a child's future planning, but unless you choose the right asset mix and the right investment avenues thereto, your planning may not yield fruitful returns.

To avoid that, you must educate yourself about different types of financial products. You see, different asset classes have different characteristics and thus behave differently under the same market conditions.

So, let's understand the traits of each asset class in one's portfolio:


Equity as an asset class has the ability to beat inflation and provide alpha returns over longer time horizon. But by nature, equities are volatile and risky investments. Due to this, many investors are hesitant to put their savings in the stock market. But, you see, in the long-term equities as an asset class will largely help you to create the corpus required to meet the financial goals - even after adjusting for the rising cost of living in the form of inflation.

If you have a good understanding of equity markets, insights about stock-picking strategies, and sufficient time at your disposal for analysis, you could invest in equities through stocks.

However, for most other investors it would be prudent to explore opportunities in the equities through equity mutual funds. By taking exposure in equities through equity mutual funds, the risk and volatility reduces to a considerable extent, because of host of benefit which mutual funds offer; amongst which diversification and professional management are the ones which standout.

However, while selecting winning mutual funds in your objective of creating a corpus to meet your children's future needs, you need to be careful and not necessarily vie for funds with a "financial planning" tag to them. Similarly, even sectoral / thematic funds should be avoided as they carry with them high risk due to their trait of high portfolio concentration.

Ideally, in your aim to achieve your set financial goals for your children's better future, you should opt for diversified equity funds as they are comparatively less risky due to their characteristic of holding a fairly diversified equity portfolio.

However, enough research should be undertaken to select winning mutual funds (in a market where there are more than 200 schemes); since respective mutual fund schemes follow a market capitalisation bias (of being large cap, mid cap, small cap, multi cap or flexi cap), and also adopt a specific style (i.e. value, growth, blend, opportunities etc.) while managing its assets.

Remember, it is imperative that you have a right combination of respective mutual fund schemes in accordance to market cap bias as well as the styles of fund management. But in case if you are a novice and/ or conservative while taking a step forward by investing in mutual funds while planning for your children's future, then you can take a defensive stance and opt for investing in pure or predominant large cap funds.

However, while selecting such a fund, apart from the past performance alone; you also need to pay attention towards the following facets amongst others:

  • The risk you are exposed to

  • Whether the fund(s) is able to justify the risk taken (in the form of greater risk-adjusted returns)

  • The fund's performance across market cycles (i.e. during bull and bear phases)

  • Comparative analysis of others mutual funds in the peer set

  • Investment processes and systems followed by the fund


Debt as an asset class is known for its ability to provide stability to one's portfolio and has capacity to generate regular income stream. Again, over here the category of debt oriented mutual funds can be of immense help to provide stability or to generate regular income as required in one's portfolio.

As you near your financial goals (such as children's education, marriage etc.), make sure your exposure to debt oriented mutual funds is increased to protect the corpus built up over the years and reducing the risk of the overall portfolio.

There are various categories of debt oriented mutual fund schemes such as liquid funds, liquid plus funds (ultra-short-term funds), income funds, floating rate funds, gilt funds, capital protection funds, Monthly Income Plans etc. which you can select from based on your investment time horizon.

While transferring your corpus to a debt oriented mutual fund, choose a fund which belongs to a fund house having a proven track record of strong investment systems and processes. However, please keep in mind that taking into consideration the prevailing market conditions at that time you may have to shift your corpus to any of the debt mutual fund categories as mentioned above.

For instance, if the then interest rates are at elevated levels and close to it's peak point, you may take exposure to short term income funds or pure long term income funds as longer tenor bond papers look attractive. Longer duration funds (preferably through dynamic bond / flexi-debt funds) can be considered, if one has a longer investment horizon (of say 2 to 3 years).

But if you have a short-term time horizon (of less than 3 months) and need to keep the principal intact, then you would be better-off investing in liquid funds. Liquid plus funds (also known as ultra-short term funds) can be considered if you have a time horizon of 3 to 6 months.


Gold has been historically considered as an important asset class mainly for three reasons:

  • Hedge against economic pressures

  • Store of value 

  • Portfolio diversifier

Gold as an asset class, gold over years has shown a secular uptrend. In 1971, the price of gold was about U.S. dollar 32 an ounce and as on January 29, 2018 it is U.S. dollar 1,393 an ounce – which indicates that price of gold has gone up by 43 times over the last 47 years.

Moreover, even the central banks across the globe take refuge under this classic asset class (considered as a safe haven) to ward off the ill effects of an economic turmoil. Historically gold has enjoyed an inverse relationship with equities and this makes it a strong bet in one's portfolio.

Hence taking into account the fundamentals for gold, we strongly believe that gold as an asset class makes a strong case for inclusion in one's portfolio (as it would safeguard / hedge your portfolio against the various risks it is exposed to).

As an investor you can either buy gold in a physical form or buy through gold ETFs.  Although investing in physical gold gives you the choice of converting the gold coins and bars collected by you into jewellery at some point in time, it has some disadvantages such as high holding / storage cost, quality / purity under question at times, sold at a premium by jewellers and banks, discounted resale value and attracts wealth tax. 

Instead, investing in Gold Exchange Traded Funds (GETFs) today is a very simple and a lucrative exercise. ETFs are instruments, offered by mutual fund houses and are listed on a stock exchange thus buying and selling them is very convenient. To simply put, a GETF is an instrument that represents an ownership of gold assets which have a premium quality, low holding cost and attracts no wealth tax.

You may also like to read: 4 Smart Ways To Invest in Gold

What should you do if it is too late for you to plan now?

If your child is already 15-16, it might be too late for you to plan for his / her graduation and post-graduation. But still you need not get disappointed. You may still try to save and invest as much as you can. However, now choice of asset classes should be conservative. You should allocate lesser amount toward equity assets. You would also be better-off keeping your savings intact for the future of your children. Not dipping in funds that been kept aside for the betterment of your children, would help. 


CHAPTER 3:Planning For Child's Education

"Education is the most powerful weapon which you can use to change the world." - Nelson Mandela

You give the best of everything in life to your child- the best clothes, the best vacations, the best games etc.

But you see, the most precious and one of the best assets you can gift your child with is a good education.


Only a sound education can empower your child to achieve the necessities and comforts of life and enable them to give the same to their children as well. 

As a parent you would remember the first day your kid entered school. He / she probably waved to you with tear filled eyes and question raised eye brows.

You will probably be in awe when your son who played with toy planes came to you one day sharing his ambitions of becoming a pilot or when your little girl who dressed up dolls as a child decides to become a top fashion designer.

These nostalgic moments give every parent bitter sweet memories of their little one’s childhood days. However, time flies and it is not too long before your little bundle of joy grows up.

Today’s generation as you must already be aware, is very smart and are fast learners due to their inquisitive acumen.

The spirit of competitiveness and vigour to achieve the pinnacle of success, whether in studies or in a work place, is very high among today’s children. However, to follow one’s dream and make it into a career can be a very costly affair.

Nowadays, schools and colleges charge very high fees to impart any kind of knowledge. Moreover, ancillary expenses such as tuition fees, stationary, uniforms etc. have also gone up.

Hence it has become extremely imperative to plan for your child’s entire education to ensure that he / she becomes a successful individual in the future. And remember that no matter how old your child is, it is never too early to start planning for your child’s education.

While you plan for your child’s education, you should follow a step by step approach.

However, many of these "childcare" investment plans turn out to be nothing but costly Unit Linked Insurance Plans (ULIPs). You see, often ULIPs and endowment plans don't offer adequate insurance, and nor do they generate adequate returns which can counter inflation.

At PersonalFN we believe in keeping insurance and investments separate. Insurance products such as child plans often come with higher charges (and much higher commissions to the agent who sells you the plan) than investing directly in various investment avenues (shares, mutual funds, PPF etc.)

Some mutual fund houses too have launched products which are said to have designed specially to take care of childcare expenses. It is noteworthy that most of these “childcare mutual fund schemes” function like normal mutual fund schemes but with a different asset allocation pattern. However, a key difference between diversified equity oriented mutual fund schemes and speciality childcare schemes is their "exit load". Most of these childcare schemes come with a high exit load to discourage parents from early redemption.

PersonalFN is of the view that, one must not get carried away with the name of any investment product or mutual fund. If you invest in the right basket of assets and build a strong portfolio to meet your goals and supplement it with the right amount of term insurance, you will save on charges and achieve your goals smoothly.

  • Cost of education: The first thing you need to do is determine what is going to be total cost of education for your child. This depends upon various factors.

    One of the things to ask yourself is; do you want your child to have a global exposure and education, or do you prefer to have your child remain closer to home? This is to be considered alongside the question - are there good schools in India/Abroad for the discipline your child is likely to choose?

    Thirdly, do you want your child to do the undergraduate and post-graduate courses abroad, or just the post graduate course?

    Finally, what is the likely overall cash outflow in both cases? And while calculating the total expense, it is important to determine what would be the future cost when your child will be going to high school or college or undertaking the post-graduate course.

    Suppose a business school charges Rs. 25 lakh today and your child will likely attend in 5 years from now; with 8% annual inflation, the fees you will end up paying would be Rs. 36.73 lakh after 5 years.

    And say if inflation increases, say at 12% annual inflation; you would end up paying even more higher i.e. Rs. 44.05 lakh after 5 years. That's quite a difference and planning to build a corpus of Rs. 44 lakh at one go may not be easy for everyone. So, you must be realistic about assuming the inflation factor and start planning early.

  • Expect the unexpected: Whenever your child enters high-school there might be many other expenses apart from school and tuition fees. These other expenses may seem small but when all taken together they will add up to a huge figure. This is even more relevant in the case where you want your child to undertake any graduate or post-graduate course overseas. This is because when your child finally does apply for an international school and gets admission, you will probably find that there are a number of additional costs that you might have missed.

    Right from flight tickets to food and accommodation, to pocket money and insurance, things will add up. But this is manageable.

    If possible, speak to parents of alumni, or alumni themselves and find out what the total cash outflow was for the duration of the course. This will give you some idea regarding the potential expenditure.

    Even after forecasting and planning for all these expenses, it would be prudent to keep some buffer money which might come into use for unforeseen expenses.

  • Assess existing assets: Before you blindly start saving for your goal (child's education), it is prudent to first check what investments are already available in your portfolio that can be mapped to this particular goal.

    For example, Mr Shah needs a corpus of Rs 1.20 crores for his son's education in 3 years’ time. To achieve this corpus if Mr Shah were to invest in debt (due to the risk involved in equities) he would have to invest Rs 2.98 lakh per month in a debt mutual fund, earning 7% post-tax returns. This would not be feasible considering Mr Shah has other goals that he also needs to invest for, the biggest one among these being his own retirement.

    Hence, he should first analyse any investments that have already been made which might help him to accumulate the desired corpus. So, if Mr Shah has invested in his son's PPF account or diversified equity mutual funds or fixed deposits with a view of utilising these savings for his child's education, then he should first assess the current value of these investments before doing any further investments.

    An important thing to bear in mind is that you must avoid dipping into the investments made for other financial goals, especially your retirement corpus while planning for your child's education. Also, you must also not dip into the investments made for your child's education for other low priority expenses such as renovating your home etc.

  • Invest smartly: Once you have made an account of the already existing investments which can be mapped towards your child's education, you might need to save and invest on a regular basis to fill in the gap. This is imperative as in the absence of the requisite savings; you would probably take loans and will land up increasing the debt component in your portfolio. Although taking debt is not a taboo, you must try to save and utilise your own funds for accomplishing goals to avoid paying Equated Monthly Instalments (EMIs) later which might be way costlier than the original loan amount.

    Hence try to save a larger proportion of your monthly income if your current savings are not adequate. In case if you find it difficult, the first thing you should do is reducing your household and personal expenses by snapping the unnecessary ones altogether or find an additional source of income.

    Remember that saving alone is not going to help you achieve your target as the inflation bug eats into your savings and erodes their value. You need to invest this hard-earned money in suitable investment avenues depending upon your asset allocation pattern and risk appetite to beat inflation and grow the value of your portfolio.

  • Adequate insurance: Have you thought what will happen to your dream of giving your child the best possible education, in case you have an untimely death or meet with an accident that impairs your physical ability to earn?

    One of the biggest potential setbacks to a child's education is the demise of the breadwinner in the family and the lack of insurance.

    Ensure that you have enough life and health insurance to at least cover the tuition fees of the school and college your child will possibly attend. You see, there are ways to achieve your family goals even in your absence. But that can only happen if you have the right amount of insurance for your family's financial goals and regular expenses to still be met.

  • Avoid pre-packaged plans from insurance companies and mutual funds: You might have heard about child plans that are designed to provide financial security to the child in case of the insured parent's demise. These plans are used to provide for various objectives ranging from your child's education to marriage.

  • Get started right away: The sure-fire killer to your goal is delay. While planning for your child's needs, it always pays to start early. This is because if you start saving and invest early, it will give you a longer time horizon to meet your financial goals (such as child’s education) and even build a bigger corpus.

Consider this example:

Mr Shah has a 3 year old son, who is going to graduate after 15 years. Mr Shah wishes that his son should pursue engineering. If the cost of graduation in today's terms is Rs 5 lakhs, then let’s ascertain how much is Mr Shah going to need to send his son to an engineering college after 15 years?

Son's Age

3 years

Cost of Education in today's terms

Rs 5 lakhs

Time left for Graduation

15 years

Inflation Rate

10% p.a.

Cost at time of Graduation course

Rs 20.88 lakhs

Amount Mr Shah needs to invest per month

Rs 4,180

You see, as seen in the table above the cost of education after 15 years will rise to Rs 20.88 lakhs due to inflation. And thus to fulfil this goal, Mr Shah will have to invest Rs 4,180 per month, assuming he earns a return of 12% per annum. However, if Mr Shah delays this investment, and starts to invest for his son's education after 5 years from now, then he would need to invest more than double i.e. Rs 9,079 per month.

After having got well educated through prudent planning, children soon seek a job or pursue a profession. They slowly start to get independent. And it’s quite an emotional moment for parents when their kids gift them something, from their first salary or earnings. Slowly children even start contributing to household budgets.

Then comes a time when you want him / her to settle down in life and get married. But to make this dream blissful and discharge you of responsibilities, again prudent planning is required. You see, in India, many parents feel that it is their responsibility to get their kids married. Typical Indian big-fat weddings make you shell out a lot of money. Although you would never mind spending money on your children, it is important to ensure that you plan for this goal systematically without harming your finances.

Let’s now understand how this can be done.


CHAPTER 4:Planning For Child's Marriage

Every father wants to make the wedding of his child one of the most memorable occasions of his / her life.

Weddings are in fact considered to be synonyms with fun-filled, colourful and musical events.

But along with all of this, another important thing attached to weddings is "expenses".


There was a time when weddings were only an auspicious day for the holy unison of two families which was done at a decent and rational cost. But today, weddings have also become an occasion to display one's social stature and monetary wealth.

Agreed, weddings are once in a life time occasions and you want all arrangements to be perfect.

But PersonalFN is of the view that, if you take a sizeable amount of debt for that one event of life which is going to take you years to repay, then you will be severely hurting your financial health. And even if you have to take some loan, make sure that you take only that much which is extremely necessary.

You see, it is imperative for us to realise that although marriage is the happiest moments of our lives, the cost associated with it can create it a sour memory if not dealt with care. Some people are of the belief that if they do not spend liberally on their child's wedding, it will become difficult for them to face the society. And in this bargain, they drain out most of their financial resources or even take loans. You need to understand that if you land up knee deep in debt by one of your children's wedding, then you are not only bidding a goodbye to most of your financial goals but also depriving your other child of the basic needs of life.

Some things which a necessity to few are also luxury to others. It is for you to decide what are your "need to have" things and what things can be "easily avoided". Once you have determined this, cutting down on extravagant costs will not be a difficult task.

Thus, having a practical approach to all wedding related expenditure is necessary and that will enable you and your family to live a stress free financial life.

For instance, if means are limited, you don't need to employ very expensive caterers, give expensive gifts to all your guests or have wedding planners organise your wedding. There are several ways to make wedding of your children the most treasured memories of your life. Choosing an affordable venue, limiting your guests to ones who really matter to you and having lesser but good quality of food options are a few ways of planning your child's wedding.

Hence determine a practical and realistic amount that you would need for your child's wedding. Once an amount has been decided, determine the future value of this amount (taking into account rise in costs etc.) and begin saving for your goal. Remember that, the earlier you start saving and investing for your child's wedding the lesser you will need to set aside per month to achieve your objective.

Now consider a case of Mrs Gupta. Mrs Gupta has a daughter aged 2. She wants to create a marriage corpus that should be ready for her daughter in 22 years. Currently, Mrs Gupta imagines that she would spend Rs 15 lakhs on her marriage if it were happening today. So, let's ascertain how much she needs to save for her daughter's marriage every month to get her married after 22 years?

Daughter's Age

2 years

Cost of Marriage today

Rs 15 lakhs

Time left for Marriage

22 years

Inflation rate

10% p.a.

Cost at time of marriage

Rs 1.22 Crores

Amount Mrs Gupta needs to invest per month

Rs 9,516

You see, considering the inflation, the corpus Mrs Gupta would require for her daughter's marriage - after 22 years, will rise to Rs 1.22 crores. And to achieve the same, she will be required to make investments worth Rs 9,516 every month, which can fetch a return of 12% per annum.

However, if Mrs Gupta delays this investment, and starts to invest for her daughter's marriage after 5 years from now, she would need to invest almost double i.e. Rs 18,464 per month. Hence you see, the earlier you start investing, the less you'll need to invest each month to achieve the same amount of money at the end of the goal.

So, by now you must have understood why it is necessary for you to plan for child related expenses in advance. But planning for these expenses is not the end. Rather, it is just a starting point. You must ensure that you execute the plan by investing wisely and also monitor your plan.


CHAPTER 5:Importance of Insurance

You may have invested in different asset classes systematically to achieve all the financial goals related to your children.

But if you don't have an adequate insurance cover, your child's future could be at stake.

All your wishes and endeavours regarding your little one's education, marriage etc. would go in vain.


Insurance in its purest sense is protection against a financial loss / uncertainty which includes the risk of illness, disability, damage to property, and the most final of them all - one's demise.

The value of your loved one's life is a very sensitive issue as your loved ones are priceless.

But it becomes necessary to evaluate a human life in terms of money, in order to safeguard from problems caused by under-insurance.

Human Life Value (HLV) of an earning member in the family could be defined as the amount that the family would require to retain the same standard of living in the absence of the earning member. This would be the maximum amount for which a person can seek insurance protection. The amount of insurance you require can be calculated in a few different ways – but a comprehensive method of calculating is the PersonalFN's Human Life Value (HLV) - Expense method.

How to calculate HLV?

HLV evaluates the need for insurance cover in terms of money required to sustain the same standard of living by the family in case something happens to the bread earner of the family.

If you are the bread earner of the family, then you should determine the amount of insurance cover that is required for the well-being of your family. In order to calculate your Human Life Value on the basis of the expense method, there are various factors which you need to take into account such as life expectancy of your spouse, number of children and their dependency period on you, monthly household expense of the family excluding your personal expense, cost of inflation, outstanding loans etc. 

Let us understand this with the help of an example.

Mr A is a 40 year old married individual who has 2 dependent children. His wife earns just enough to take care of her own livelihood. He already has a life insurance cover of Rs 30 lakhs and Rs 35 lakhs worth assets which can be used by the family in case of his demise. But he also has outstanding loans worth Rs 30 lakhs which are yet to be repaid. Mr A is not sure whether this insurance cover is adequate enough to achieve all the financial goals of his family in case he meets with an untimely death. His family details are as under: 

Monthly Family Household Expenditure

Rs 30,000

Annual Lifestyle Expenditure

Rs 1 lakh

Number of Dependents


Age of Dependents:


15 years


10 years

(Inflation on Household expenses is assumed to grow at 7% p.a.;
Return on Risk free Securities is expected to be 7.5% p.a.)

From the table above, it is clear that 25% of household expenditure and 30% of annual lifestyle expenditure is spent on Mr A himself, which will not be required to be taken care of by the life insurance policy. On the other hand, 25% of the monthly household expenditure and 20% of the annual lifestyle expenditure is spent on the daughter and son each, who are going to remain financially dependent on Mr A till they both attain the age of 23 years (i.e. for another 8 and 13 years respectively).

 The financial goals of Mr A are as follows: 

Financial Goals

(in Rs)

(in Rs)

(in Rs)


3 lakh

15 lakh

12 lakh


5 lakh

15 lakh

12 lakh

By means of the HLV (expense) method, one can calculate the insurance requirement for Mr A to be Rs 49.56 lakh (using the HLV calculator). Hence, rounding off the figure calculated Mr A would require an additional cover of Rs 50 lakhs to be able to meet his financial goals and maintain the existing lifestyle of his family. 

You see, Mr A had no idea about the exact insurance cover that would suffice his family requirements in case something untoward was to happen to him. But with the help of a proper approach he was able to determine his insurance needs appropriately. 

Hence, instead of blindly following any insurance agent's advice who would earn handsome commissions if you opt for any policy recommended by him, it would be prudent for you to undertake a rational approach of your own. This would give you a more realistic picture of your insurance needs rather than asking your friends or relatives for guidance who are probably as ignorant as you are. 

Once the HLV has been calculated, the next step is to choose the appropriate insurance product to cover your needs. There are a number of insurance products available in the market today – from term plans to ULIPs to endowment plans and so on. It is important to assess the available products and select the right insurance for your needs. At Personal FN - we recommend opting for pure term plans.

You can simply use PersonalFN’s HLV Calculator to calculate the human life value.

Term Plans

A term policy is a simple pure life insurance product which provides a sum assured in case of the policy holder's unfortunate demise. Most people are not in favour of a term policy, as there is only a death benefit. Also, it is believed that since the insurance is available only for a particular term, after which there is no cover, it is not a comprehensive policy.

But the reality is that term policies are the purest form of insurance available today. They are very cheap compared to other insurance policies.

The term plan provides for a large sum assured (corpus in the event of death of the policyholder) at a lower cost, which can help take care of finances in the absence of the breadwinner.

Ideally, you should buy a term plan for the maximum tenure available. The maximum tenure available as well as the premium charged differs across insurance companies. Individuals should check these aspects before finalising on such plans. The earlier a term plan is bought, the cheaper it turns out to be. Therefore, the earlier you buy a term plan the better it is. At PersonalFN, we believe taking a straightforward term policy is the best insurance you can take.


CHAPTER 6:Mutual Funds For Child's Future Planning

Araina had received a piggy bank as a gift from her grandfather 2 years ago. And, she's been excited with the concept of saving money ever since.

When her piggy bank was nearly full, she asked her parents to open it. To her surprise, she had collected a sum of Rs 5000, and was excited to buy a video game out and insisted on it to her parents.

But before giving in to her demand, they introduced her to the "value" of money and invested in mutual funds on her name.

Yes, you heard it right. Children can also invest in mutual funds, let's find out how:


Mutual Fund investing for minors

You can invest in mutual fund schemes in the name of your minor child and there isn't an age limit or restriction on the investment amount.

Parents or a legal guardian can invest and transact on behalf of a minor child. 

And what are the documents required for investing?

You need to submit a valid document for proof of your child's age and your relationship with the child.

It is mandatory for the guardian to comply with KYC regulations.

Further, you also need to provide your bank account number. As the investment will route through your account (as a parent / guardian), you need to submit the Third-Party Declaration Form along with your bank's acknowledgement letter. 

Alternatively, you can directly route these transactions through your child's bank account but furnishing the bank's acknowledgment letter is a must.

What happens when your child turns 18?

As the funds are in your child's name, you do not have the authority to redeem the fund once your child becomes a major. So, first step is to complete his/her PAN and KYC formalities. And change his/her bank account to the status of a major from minor. 

Your SIP instruction will be valid only until the day your child attains majority even if your SIP is perpetual. 

So, is it a wise choice to invest in your child's name?

If you wish to avoid unnecessary paper work and rigmarole, refrain from investing in your child's name. Instead, invest in your name as a parent/guardian in respective mutual fund schemes and nominate your child as a nominee. You can also become a joint-account holder and transact as and when needed. This will simplify the formalities and make it easier to manage it.

Holding funds in your name will give you more flexibility to modify the portfolio if needed. But if the funds are in the name of minor son / daughter, re- allocating has to be with your child's consent once his/her age turns major. Also, the funds will be directly transferred to your child's bank account and hence, you will not have any control on it. 

Hence, joint account holding will give you flexibility and control over your investments. 

As far as tax benefits go, there are no tax benefits for holding investments in your minor child's name. Income on these investments will be added to your total income and tax will be levied thereon. 

So, be wise while you're planning to invest in mutual funds for your child's future. Take the right decisions.

Also read: 6 Tasks To Complete When Parents Pass Away


CHAPTER 7:Conclusion

Child's future planning is not as easy as it might appear. It goes far beyond just keeping aside money for his/her future.

It starts from instilling the habit of saving in your children.

When you let your kids understand the worth of money, they themselves start spending wisely from childhood.

This will make them less demanding and help them understand the value of hard earned money.


The next step is identifying the goals followed by deciding on the asset allocation, but it doesn't end there. It also involves reviewing the performance of the plan drawn and recasting the plan (if needed) and so on.

Moreover, while planning finances for various child related goals such as education and wedding of your children, you should adopt a systematic approach and invest wisely.

Following the schedule of your plan and timely execution holds the key. Portfolio rebalancing is also essential and shouldn't be underestimated as childcare planning is not a one-time process.

So, if you wish to give your little bundle of joy the best education and get him / her married in style (but within your means), plan for his bright future right from today.

PersonalFN believes that it is possible to fulfil the dreams you have envisioned for your children without jeopardising your personal desires, with the help of sound financial planning and suitable asset allocation.  

If you liked this guide, do share it with your friends, family and help them in planning for their child’s future as well.