For most Indian parents, there are two key aspects when bringing up a child—their education and their wedding. While it is encouraging that these days there is greater focus on higher education, you should always keep in mind that both should be planned / saved for simultaneously.

Target creating a corpus for higher education that is 2-3 times of the wedding cost. The longer one can save / invest, the larger the corpus - thanks to the power of compounding.

Investment avenues

If you have over 20 years to save, then one can look at equity mutual funds (ideally mid & large cap funds) or even direct equities which will give good returns over this time horizon. Another investment avenue for the long-term is child insurance plans. This is a relatively safe option and also gives protection against any uncertainties.

The lower the investment period, fewer will be the options available to invest. For example, if the time horizon is around 5 years then equity is no longer an option. But one can possibly invest in real estate (especially plots) which can give good returns in this time period. However, it is advisable to invest in these with caution as they are not risk-free.

For even shorter time periods, the best investment avenues are debt & gilt funds, which protect capital but offer lower returns. It is wise to keep in mind that the longer one waits to save, the more one has to save. One should also keep in mind inflation, as this will erode the value of any investments, that is, if the inflation is 7 per cent and the rate of return on the investments in 12 per cent, the actual return one can earn will be only 5 per cent. This should be factored in while deciding the investment avenues and time horizons.

Gold mutual funds/gold ETFs

An ideal way to start investing for gold (important investment for weddings) over the long term is to invest in gold mutual funds/ gold ETFs (which can later be converted to physical gold). This will give the benefit of rupee cost averaging, and the way to invest in gold is through a monthly investment from the time the child is very young. This will result in a substantial corpus to purchase/ convert into gold by the time the child is ready to get married.

One should also make a wedding budget, with detailed cost break-ups on how much is to be spent on venue, shopping, food and so on. In Indian weddings, there is always a lot happening and there will be quite a few unplanned expenses—one should also keep this in mind while making the budget.

( The writer is CEO & Founder, Right Horizons. )

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