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Alok Agarwala
Research Head

Having children is the most wonderful thing in life that a couple can have. It brings a sense of joy, a sense of responsibility and matures you into an adult. It is like a flashback movie scene wherein you can see and live your own childhood. It makes you realise how much your parents love you. An indirect benefit of becoming a parent is that you start loving and respecting your parents even more than before.


Me and my wife were blessed with a cute little girl almost three years after marriage. I do not have words to express the joy that we experienced watching the newly born open her eyes and give us an enchanting look only to close her eyes back again to go back to sleep. Every thing related to her, whatever she did and whatever she didn't, enticed us into remaining glued to her for hours. It was a lovely feeling. How could she be so cute, sweet, innocent and lovely, all at once?


The birth of a child also brings with it added responsibilities and one must plan for them, particularly for those that involve a financial outgo, well in advance, to ensure that you continue to enjoy the various aspects of parenthood without worrying about the finances that will help shape the child's future. And I must thank my financial planner, Ravi, for bringing this to my knowledge the day I let him know that we were planning for a child. This was sometime in January 2008 when he had visited me with a draft of the financial plan he had prepared for me. As soon as he came to know that we were planning for a child, the first thing he asked me was whether our health insurance (mediclaim) policy provided a maternity cover for my wife or not. He then explained to me as to how a maternity cover would meet a majority of the medical expenses of delivery and hence save me money. Fortunately, my mediclaim policy provided the cover. As I confirmed the same to him, he immediately rose to leave and said that he would visit me after a day with a new financial plan. Surprised as I was, I did not ask him the reason for his abrupt behavior.   Till that time, I had read about the benefits of having a financial planner but seldom had I realised the importance of it. I realised the true benefit of it in March 2009 when my child was born.


As promised, Ravi was there at my house after a day and after exchanging pleasantries, presented me with the draft of the new financial plan. When asked what changes he had made in the erstwhile plan, he replied saying that he had included a mini financial plan for planning the future of my would be child in my broader financial plan. Interesting though it seemed, I could not make out how exactly it could make a difference, as I was, by God's grace, leading a perceivably comfortable life, earning enough to take care of an additional member in the family. However, as Ravi took me through the details of the plan, it became increasingly clear to me that he was correct. I had grossly underestimated the financial requirements that I might face years down the line when my would be child goes for higher education or for marriage. I had simply not factored in the impact of inflation. Suddenly, my existing finances started looking paltry as compared to the expenses that I will have to meet in the future to ensure a secure future for my child. Moreover, I had not at all assumed the following scenario – what if I am not there to see my child through to a settled career and marriage? What if I am not able to sufficiently provide for all the future financial needs of the child before an untimely departure?


I shuddered at the very thought of it. Then I saw the plan that Ravi had prepared and I wondered at the marvel of financial planning and his expertise. He seemed to have automatically addressed almost all the concerns that had sprung into my mind a moment ago. As if he already knew I would worry about those things.


What Ravi presented before me was very simple however. First he identified the goals that I needed to provide for. This included expenses for the child's higher education at age 18 and then at 21. Then came marriage at age 24. Also, he asked me to take a health and life insurance for the child. Having identified the goals, we then proceeded to determine the expected costs for each of those goals. The process started with an estimate of costs as they were today. Later we compounded them at an expected rate of inflation (say 6%) upto the year when they fell due. I was surprised to see the amounts multiply by many times. If, for instance, the sum required for higher education at age 18 was Rs. 10 lakhs today, it became  almost Rs. 30 lakhs 18 years into the future, Rs. 34 lakhs 21 years into the future and Rs. 40.5 lakhs 24 years into the future, at a compounding rate of 6%. The total future expenses thus amounted to more than Rs. 1 crore! How was I supposed to save so much money? I put up the question to Ravi.


Don't worry, he said. Have you heard about the power of compounding, the return potential of equities and the benefits of regular investments? He asked. I nodded in the affirmative. I recollected that Albert Einstein had called compounding the eighth wonder of the world and that equities give erratic but nevertheless high returns and that an average salary earner has no other way but to save every month, to build a meaningful corpus. Very deftly he showed me certain calculations done in a spreadsheet in his laptop that showed that (i) compounding can result in astonishing sums of money over a long time horizon, (ii) equities though they gave erratic returns in the short term, they had given the best returns in the long term with very limited risk, and, (iii) that regular investing (he called it SIP or Systematic Investment Planning, if I remember it correctly)  helps one accumulate an unimaginably high corpus with even meagre investments every month and that too at a very low risk or volatility and despite market levels. 


He then proceeded to show me how an investment of Rs. 2000 a month (raised by Rs. 500 after every 24 months) into a good diversified equity mutual fund scheme can become more than Rs. 30 lakhs after 18 years at a annualised return of 15% p.a., something that could be reasonably be expected from equity markets. Similarly, a SIP of Rs. 1000 per month (raised by Rs. 500 every 24 months) could become more than Rs. 34 lakhs after 21 years and a SIP of Rs. 500 per month (raised by Rs. 500 every 24 months) could become more than Rs. 45 lakhs after 24 years. Wonderful! I thought. Saving and investing just Rs. 3500 every month from now on would assure my child's future? Unbelievable! But the maths was right and you can't refute maths.


"Very well, let me know the schemes in which to invest then." I said. "Wait." Replied Ravi. "You also need to ensure that these SIPs will continue even in case of your unfortunate absence." My euphoria died down. "How can we do that?" "Very simple. Buy a term insurance for yourself for an amount that is adequate to meet the household expenses as well as the Child's regular investment needs in the future". Ravi then proceeded to show me how by buying a term insurance of Rs. 1 crore, the monthly premium for which worked out to less than Rs. 3000 at that time, I can provide for the items mentioned above, adjusted for inflation, in the future. "Relieved, huh!" he asked looking at my face. Indeed I was, never having imagined that it could be so simple.


In a nutshell, by following the plan presented by Ravi, I was now able to secure the future of my child even in my absence. This is the power of financial planning, I had heard about. I thought. When asked about when to start with the plan, Ravi retorted, "Immediately". That was enough for me. He suggested me the suitable mutual fund schemes and term insurance plan, which he had selected with great care to ensure that while the mutual fund schemes belonged to reputed mutual fund houses and had a long term history of consistent, stable and above average performance, the term insurance policy was the lowest in cost (premiums) among those available at that time without compromising on the required benefits and would return the premiums paid by me at the time of maturity.


In due course, my wife gave birth to a healthy, sweet, cute, little princess (pardon me for the adjectives, but I can't help it) in March 2009. As expected, almost 90% of the hospital expenses were taken care of by the health insurance policy we had (due to the maternity cover attached to it).


Today, when my daughter is slightly more than two years old, I am comfortably on my way to accumulating a substantial corpus for her future, knowing very well that her future will be taken care of even if I am not there. Life has so many worries. Even my life has today. But I am fortunate to have most of my major worries put to rest by meticulous financial planning, so that I can now devote time for the other duties and responsibilities of parenting. Having already registered my daughter in a good play school, I can, touch wood, take pride (no matter how premature it might seem to your eyes) in the fact that I have secured a financially secure future for my child by opting for a financial plan at the right time.

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