Children's Day: Want to make big money gift for your child's future? Beware of inflation monster
Children's Day falls on 14th November and it is considered one of the most suitable days to start investing for one's children.
Children's Day falls on 14th November and it is considered one of the most suitable days to start an investment for one's children. The investment goal can be marriage, education and more. Unfortunately, while making an investment it has been found that people keep returns and maturity amount in mind while not taking account of the monster of inflation during that period. So, tax and investment experts have advised that one should calculate the rise in inflation during the period of investment while deciding one's investment goal. Experts are of the opinion that in the long-term perspective rise in inflation can be assumed at 6 per cent. Therefore, while making any investment for the purposes of education, marriage, home, car, and more for your children on this Children's Day, you are advised to calculate the rise in inflation which will adversely impact your financial goal during that period.
Speaking on the kind of options one can think of for one's children on this Children's Day, Harsh Rungta, CFP at Rungta Securities said, "While investing for one's children this Children's Day, investors are advised to keep inflation in mind. It is very simple. One can calculate the maturity amount for the period of investment keeping the conservative interest rate as told by one's investment advisor. However, an investment advisor doesn't speak about the inflation taking place for the goal an investor is looking at. So, it is advised to all investors to calculate the rise in expenses of the goal taking place during the investment period."
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Highlighting upon how to calculate the actual worth of one's maturity amount in comparison to current time Balwant Jain, a Mumbai-based tax and investment expert said, "Generally, for long-term average inflation is taken at 6 per cent. However, it is bad practice to deduct the 6 per cent inflation from the told average return on one's investment. Best practice is to calculate the maturity amount on the basis of told rate of return on one's investment and then calculate the appreciation in the expenses related to one's investment goals." Jain elaborated on the inflation part with an example. He said, suppose one needs to spend Rs 5 lakh on higher education of one's child. Then he or she needs to take 6 per cent average appreciation in this price when he or she would be getting one's maturity amount. If the maturity amount is higher than the price one needs to pay in the current time, then the investment goal can be expected to be achieved. Otherwise, the investment amount needs to be increased or there is a need to choose some other investment plan for the better career of one's children.