The season of receiving gifts – Are you investing or blowing them away?
30th Oct, 2013
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Second half of the calendar year is generally a busy season for the families in India. This is the season of festivals and joyousness. People from all religions celebrate their respective festivals with pomp and vigour. Be it Janmashtmi, Raksha Bandhan, Ganesh Chaturthi, Ramzaan, Navratri, Durga Puja, Dusshera, Id, Diwali or Christmas, lot of action happens during these times, not to forget family weddings which is a festival in itself.
The festive season is also the season of receiving gifts from our near and dear ones. During Raksha Bandhan, sister receives gifts from her brother and in other festivals especially Diwali, children receive lot of gifts from elders. These festivals also bring along with a list of “to buy” things and hence most of the time the money which we receive as gifts gets blown in buying a few of our favourite things. The front page ads in most of the newspapers and TV commercials ensure that we spend every penny we have received as gifts during the festive season.
This festive season, we advise you to be a little prudent and encourage your children to do things in a different manner. You can urge them to try and save a certain amount for their future goals and spend the rest of the amount on their favourite gadgets or outings. This will inculcate a great habit in them and will come as their saviour when they are in need of money. Here we show, how you can help your children be smart about managing unexpected gifts of money.
First, open a bank account in the name of the child and deposit the cash gifts which they have received from their relatives. This will ensure that money is not lying in the cupboard or piggybank. This also instil a sense of discipline in the child and when he sees his bank balance going up, it would encourage confidence in the child to save more.
Next, you can invest this money in a financial instrument depending on your goal. It can be many things. We present to you the following options as per your convenience and requirements.
Bank FD: This is the safest form of investing the gift amount. The horizon can be 6 months to 10 years depending on your goal. For people who do not want any risk with their capital and a guaranteed rate of return, this is the best form of investment. However, pls note any interest earned on the fixed deposit will be added to parents income and taxed accordingly. Also this option may not be able to beat inflation in the long term.
Children ULIP plans: This can be another option particularly if you do not have a bank account and you want to invest the cash gifts which your child has recd. However, you should remember that any investment in ULIPs should be done for a longer tenure (10 – 15 years). If this money is earmarked for long term education goal, then child ULIPs make perfect sense. Also choose those ULIP plans where the charges are low. All insurance companies offer child ULIP plans and you must compare the charges and decide accordingly.
Mutual funds: This can be another great way of investing the gift amounts. You can also choose different types of funds viz Debt, balanced or Equity depending upon your goal and risk profile. If the tenure is short term you can stick to debt investments and if the money is not required for 7-10 years and wait to save for child education or marriage then you can chose Equity as a preferred option.
Gold: Many parents have a penchant for buying gold for their daughter’s wedding. Many parents buy gold during Dhanteras (2 days before Diwali) as it is considered auspicious to buy on this day. Buying physical gold for investment purpose for daughter marriage at distant future is not a prudent way of saving. If one wants to invest in gold, then Gold ETF or Gold Mutual Fund is a much convenient and cost effective way of investment.
Finally, we would like to quote Warren Buffet on a very important principle of life “Don’t save what is left after spending. Spend what is left after saving.” So SAVE, SPEND and have a wonderful festive season ahead!
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