Investing in your child’s name is a better idea

Many people ask me this question..”Should we invest in our child’s name?”.  The answer is not so clear. Legally speaking, it does not matter whether you invest in your name or in your child’s name. Once upon a time when taxation was a consideration, creating many folios made sense. Today with tax not being a consideration, does it make sense to invest in your child’s name?

In my view, yes. Start a SIP as soon as the child is born or as soon as you get your child a bank account. It is now NOT POSSIBLE to invest from your account too. So start the SIP from your child’s account. Of course he/she does not have any income, but you will use your money to create a corpus for the child. The KYC (Know your customer) will have to be done by either of the parents.

From time to time whatever gifts they get should also go into that account.and the child should see that statement on a REGULAR basis. When the post comes HOME in the child’s name the kid will be proud that he/she gets some post - just like the older people. Tell him that this money is being created for a corpus - but he is allowed to have fun with Rs 2000 once a year. See whether he wants to withdraw it. Most of the time they do not. It feels like “their” money.

So when a slightly less justified demand comes up -just hint that the money will come from that account. In many cases, the demand for that product will be postponed or cancelled. One more thing that you can do is to say “we will buy that new shoe with 50% from your money and 50% mine” —  again the chances are demand may go down! Value systems, money, concentration, patience, cooking, .are skills which parents have to teach. Do not abdicate your duty. Nobody else will teach your child how to save money. Or how to invest. My daughter said “why should my money be in a bank fixed deposit when it can earn 
better in shares”. I said “there is risk”. She said: “Even if  I were to lose it all, you will give it to me - so the risk is on YOU, not me”.

There are books available for children too! One book taught her about risk, and now she has started doing some reading. She knows that ‘her money’ or whatever it means is in Equity Mutual funds and a couple of ULIPs. That should take care of her education for sure assuming she goes abroad for her post graduation. However, she never ever suggests removing that money to buy something which she wants. No, she will not think of buying an iPhone with ‘her’ money. To be fair, she has not asked for an iPhone even with my money!! So forget the ‘legal’ necessity to keep money in children’s names, it makes sense from a teaching point of view. Do remember it gives the kids to walk out at age 18 and claim all the amount. Hopefully, it will not happen, but make sure that the amount that you have in children’s names is not too much - tempting them to walk out, and you not having money for yourself!!

PV subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’