Financially savvy proxy gifts

28 August, 2007:

It is that time of the year when we are shopping for gifts for our dear ones. Mostly we end up buying what we think they may not have or would like to have and only to realize later that we were wrong. Every year there may be goof ups like the color of the sari didn’t win your sister’s approval. Or your parents didn’t think of your extravagance necessary at all. Time to repeat the same mistake? Instead of gifting something what anyone can imagine, try some thing novel this Diwali. Something only a wise person like you could have come up with. Here are a few ideas.

Children

Gifts for them happen all around the year. Mostly they decide the gift in advance. A new computer game, sports shoe or a vacation… it is all worked up in details in their head. All you have to do is to just nod. Spring a surprise this Diwali. How about educating them about finances with, say, as little as Rs 5,000?

Yes, you can invest a small amount in a children’s mutual fund or a diversified equity mutual fund in your child’s name. Show them how it grow every month or a year. Then take them through basics of investing. Introduce them to idea of regular savings --you just have to invest regularly or every Diwali in the scheme for the child to get the idea. The child will also ask you questions about how the stock market or mutual fund works and how much money s/he made. If you keep them up to date or ask them to keep track to the NAV of the scheme, they also would get into the game. The thought that the money is going to fund their college education will give the child extra incentives to keep track of the investment.

This can actually be the ultimate gift you can give your child. Most children commit the same mistake of not saving enough in the early part of their career. A costly mistake, as the power of compounding rate can add a few zeros to investments made earlier in our lives -- be it savings for the first car or a house. Your child may thank you later.

This is not an idea only meant for children. If your brother or sister is particularly bad at finances, you can try this idea on them, too. Come on, it is definitely better than an expensive sari or gift.

Another wise idea is to buy a medical insurance cover for your child. Don’t think that hospital bills are something associated with old age. Even children may need it. Get a health cover and get some peace of mind. Also, you don’t have to hoard a lot of money for unseen emergencies. Instead earn something extra on it.

Parents

The conversation with your parents may be steering towards spiraling cost of living and dwindling interest rate recently. Have you ever thought of what they really fear beyond giving fundas about the state of the economy? They are worried that they may not be able to sustain their current standard of living after retirement. Or they may consume their retirement corpus due to the higher cost of living. Simply put, they are trying to convey their fear that they may be forced to seek your financial help in the future.

This Diwali try to reassure them with an annuity if they are retired. If they are on the verge of retirement, try a retirement plan from any mutual funds or life insurance companies.

For annuities you can shop with Life Insurance Corporation of India or try the new Senior Citizen’s scheme introduced by the Central government. These schemes offer monthly, quarterly, semi-annually or yearly annuities. The quantum of annuity may depend on your investment. The advantage of annuities is that the rate is fixed and your parents would get a regular income.

If you are shopping for a retirement plan, you have lot of options. Almost every life insurance company has retirement plan. Even mutual funds offer retirement plans. Invest a few thousands in your parents’ name and make a beginning. Encourage them to invest regularly in the plan. When they retire, they can withdraw the money or convert it into an annuity.

Medical insurance is also a smart idea for your parents. Sure, the premium will be a bit steep. But it is worth it if you can get a cover. Chances of them needing hospital treatment is greater with advancing age. A health insurance cover may help you and your parents save quite a bit of money.

Spouse

Any financial plan is at the risk of undoing without the participation of your spouse. Why not get your partner into confidence instead of the usual bickering. Get into an investment game. If you don’t have the habit of investing in equity, start the habit with this Diwali. Yes, equity is risky. But it also earns you handsome returns. So, treat it like the Diwali gambling. Make a new beginning this year with a small amount, say, Rs 5,000. Go for a diversified equity fund from a reputed fund house.

Another idea is to invest some money for the retirement corpus of your spouse. If you never thought about retirement, let this Diwali be the beginning. As you know, you need a larger retirement corpus as you are facing the risk of living longer and higher cost of living and medical bills. Begin building a retirement corpus with Diwali and walk into the sunset with greater peace of mind.