Most grandparents are keen to leave behind some assets for their grandchildren. They tend to make regular investments on behalf of these grandkids in the hope of having something substantial for them as they grow older. But often, grandparents tend to forget that the investments are for the young ones and not for themselves. And that colours their investment strategy. That is the main point that authors are making in the article below presented in an illustrative style. Team RetyrSmart
Making investments for your grandchildren the right way
Vishwanath has been saving for the last five years or so to build a corpus for his grandchildren. He has invested mainly in FDs, gold and small savings schemes. With some of the investments maturing, Vishwanath realizes that the accumulated amount is not much. As the investments are in his name, he wonders how he can ensure a smooth transition to the beneficiaries.
Vishwanath’s dissatisfaction stems from the fact that he invested according to his personal risk preferences and requirements rather than that of his grandchildren. These funds can remain invested longer because the children are still young. Moreover, generating regular income and cash flows is not the purpose. Vishwanath should consider assets such as equity and gold as he wants the corpus grows to a sizeable value. He can invest in equity through index-linked products where the risks are lower and involve lower pre-investment evaluation and post-investment monitoring.
Balanced schemes of mutual funds that have exposure to equity and debt may also be suitable. These are investments that will provide appreciation but at a level of risk that he is comfortable with. For his gold investments, a safer and easier way to invest is through gold ETF units or sovereign gold bonds, which he can accumulate over time.
Vishwanath should make some operational changes to the way he is investing. He may invest directly in each child’s name with the parent as guardian. Investment rules also allow grandparents to make investments on behalf of minor grandchildren. He can also make the investment in his own name and nominate the beneficiary grandchild as nominee for each investment. In either case there will be a tax implication on the income earned on the investment, either for the parent or for Vishwanath.
Vishwanath should seek the help of an adviser and keep his family informed, who will help with the investment plan and operational details. He needs to build a portfolio of growth assets, which will create an adequate corpus for each grandchild as they become ready to use it.