Expert Answers - Planning your family finances effectively

Congratulations and Wishing your Sister and Brother-In-Law, Happy Parenting.

Few things should be done to secure the new born. Parenting is a beautiful responsibility.

Step 1 - Once the name is finalized, your brother-in-law (or) sister has to include the kid in the Health Insurance Policy. If they are employed, they have to inform the Employer (HR). If they are an entrepreneur, they can include the kid in their current Health Insurance Policy. They have to reach out to the Insurance Advisor. If required a fresh policy has to be taken.

Step 2: Would suggest taking a fresh term insurance policy for a duration of 25 years. The amount should be 2x of Gross Annual Income (or) Rs. 30 Lakhs, whichever is lower. By this we secure the future of kids education and career. This insurance policy should be taken in the name of the bread winner (the Insured has to be your Brother In Law or Sister). Sometimes, Insurance Advisor will take the ULIP policy and make the kid as the Insured to reduce Mortality charges. Taking Life Insurance for Kid's life is NOT required.

Step 3: Investing in Mutual Funds. Diversified Funds, Multi Cap Funds, Mid and Small Cap funds will generate better alpha (returns), considering the long duration of 15+ years. Few factors should be considered before deciding the investment amount - Annual Inflows, Outflows - Financial Goals - Risk Taking ability etc. Investing in ULIP, Insurance Policy or GOLD Coins is NOT recommended. Investing in CHILD care plan is NOT recommended.

Step 4: If its is a Girl Child, Government has a scheme called "Sukanya Samriddhi Yojana". The same can be invested through SBI or Post Office. If the disposable income is high, suggest using this option.

Step 5: I'm sure the kid will be get Cash Gifts. My suggestion is that accumulate all the Cash Gifts and invest it as a Lump sum in Mutual Funds (or) Index Funds (ETFs). The growth will be humongous. I did this for my daughter. Rs. 1 invested when she was born grew to Rs. 15 when she was 18 years old, delivering an absolute return of 1400% or Annualized return of 16.2%.

Suggest you reach out to a Certified Financial Planner.

Once again I appreciate the pro-activeness! Way to go!!

Dear Mr. Kasi, Investing in SIP is the right thing to do for any long term goal, say Retirement or Kids Education or Child's Marriage, which is 10 to 15 years away.

When the markets are volatile (or) when the market is in correction mode, we need to invest more via SIP. So this is the "Right Time" to start investing through "SIP in Mutual Funds" for "Retirement Purpose".

Even those who have retired now (Say 58 or 60 years), and whose life expectancy is above 85 or 90 years, should consider investing in Equity through SIP (Systematic Investing Plan), especially the interest component.

Investing in International Funds can be part of your portfolio. Say 10% or 15% - Depends upon Asset Allocation Strategy. Suggest International Funds from Wealth Protection or Hedging perspective, and not from a Financial Goal perspective (Retirement).

Indian stocks are cheap? Answer is Yes and No - If you look at this website - https://www.idfcmf.com/is-it-a-good-time-to-invest.aspx , You will still see that the markets are still in the Expensive Zone

Very happy that you want to build a corpus for your son, who is 8 years. If he wants to do a Masters in the US, when he is 21, it would cost him Rs. 59 Lakhs, assuming today's cost of pursuing MS at 40 Lakhs, at 3% inflation.

Good that you are having only loans on appreciating assets (like Home) and not on depreciating assets (like Car). Also happy that you don't have Personal loans, where the interest costs are very high.

Would be needing few more data points like How much is the monthly expenditure (normal and lifestyle expenses), other commitments (example - taking care of parents financially), Life Expectancy, Risk Profile etc to decide the Retirement Goals (Corpus, Monthly Investments needed, Where to invest) etc.

Suggest approaching a Financial Planner. Wishing you Financial Freedom by Age 50, which is 12 years from now and quite possible.

I'm extremely happy to see this question. Responsible parenting and Awesome daughter, who wants to invest at an very early age. I think your daughter would be having few goals like this - Further studies, Buying a 2 or 4 wheeler, Travelling, Corpus for Marriage etc.

For these type of short term goals suggest she invests in a liquid fund, which gives better returns than Savings Bank (or) Short Term Fixed Deposit, through SIP.

For long term goals like Buying an house after 10 years (or) her own retirement after 25 or 30 years, she should invest in Multi Cap, Mid Cap and Small Cap Funds. There are fund houses which accept Micro SIP, which means she can invest Rs. 100 per month.

The above helps her to know more about Where to Invest.

With respect to How to invest, suggest there are online apps and portals. Periodical review of the Portfolio performance against benchmark is important. At least once a year. Suggest she reaches out to the right / qualified professionals. She can also reach out to Mutual Fund Distributors for investing. https://www.amfiindia.com/locate-your-nearest-mutual-fund-distributor-details or https://www.certifiedfinancialguardian.com/

Good question. It depends on the portfolio size and annual income. If we are tech savvy, suggest creating a customized spreadsheet (Microsoft XL or OpenOffice) with Pivot Reports. If you are looking for a Mobile App, suggest Goodbudget App by Dayspring Technologies.

If your portfolio size is few crores and / or annual income is greater than 12 Lakhs, suggest building your own spreadsheet. Tools should help us to create a budget, track actual, do an variance analysis and take corrective actions.

A good tool should give "trend analysis" on 4 aspects - Earning, Spending, Saving and Investing!

Investing in the Mutual Fund is the right option, as it gives diversification. Investing in a fixed deposit in XYZ company means, we are taking a huge risk. Instead of this if we are investing in a Debt Fund, not more than 10% of the Corpus will be invested in one company (Say XYZ).

Choosing the right fund depends upon three factors - Investment Goal, Duration and Risk Appetite. For shorter duration you can invest 50k to 1 Lakh in Liquid Funds, across two fund houses - 50% each. If the duration is say 3 years, you can look at Balanced Funds, across three schemes (33% each). If you need the money after 10 years (say), then you can invest 25% in 4 funds - Two Multi-cap Funds, One Mid Cap Fund and One Small Cap Fund.

Good morning Mr. Vijayakumar. Very happy that you had included Gold as part of your Asset Allocation, and the key word is "small amount". My suggestion would be to revisit your Debt (Fixed Income) and Equity portfolio as well. If you are having more allocation to Fixed Income, it would be good time to move a part of it to Diversified Fund, say Multi-Cap funds using Systematic Transfer Plan route over 12 to 16 weeks. Hence you can retain the "Gold fund" for the time being and revisit the portfolio in Jan 2020.