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This festive season, as with all earlier ones, a lot of gifts willbeex - changed. However, for near and dear ones — especially while gifting to someone who is much younger — you could gift an investment this time instead of some physical item. This is a concept that some financial planners are trying to propagate. At the core of this upcoming trend is the idea is that if one is gifting an investment to another person, the gift’s value — in all likelihood — would appreciate over time rather than diminish as it happens in the case of physical gifts.

By gifting an investment, a person is gifting a future to whom the gift is meant for. Gifting an investment on one birthday is just not that — it’s actually a present for so many birthdays. This strategy of gifting an investment, more suitably a systematic investment plan (SIP), works best in the case of a child who has long years in front of him/her to make proper use of the investment received as a gift.

There could be two routes under such a plan. The first is to start investing in one or a few funds as and when a person, usually a kid or a slightly grown-up child, gets money as gifts. The second route is to start an SIP in the name of the child and continue with the same.

Financial planners say that a child often receives cash on family occasions like naming ceremonies, birthdays and festivities. So what one can do is put all the cash that the child gets in a bank account and then issue a cheque from that account. People receive a lot of cash during the festive season or during other occasions and often such cash in just kept in the locker and gets spent. Now how it’s spent, most people don’t know. To put into practice what he professes, Kothari himself has such investments for his daughter, which is for the long term.

There was another financial planner in Goa who had years ago forced one of his friends to start an SIP for his daughter on her first birthday. Years later, when that girl was getting married, the funds accumulated in that SIP proved to be of immense help to her parents. Financial planners say there are quite a few such examples.

One of the advantages of such investments in the name of a child is that they have great sentimental value for the parents and usually they do not break or redeem such investments. So, by default, the sentimental value attached to it makes it a longterm investment for the child.

And when the child grows up, he/she can use that money for his/her higher education, wedding or any other purpose. In turn, such an investment also lightens the financial burden on the parents, financial planners and advisers say. Such investments, done for a child, could remain for 10, 15 or 20 years and the power of compounding kicks in to build wealth over those years, they point out.
Within a family, such investments also have a great demonstration effect on other senior members of the same family. Once a member of the family starts an SIP for a child, and other members also get to know about it, those other members get encouraged to take the same route too.

There are several children’s plans that either the parent or any one else can gift to the child. However, the same may not hold for other mutual fund plans. In such situations, the money has to be routed through the parent.

Financial planners and advisers also have a few caveats for this type of investments. According to a financial planner, there was a gentleman who gifted his grandson an investment in a high-risk, high-return fund. The fund initially did well when the market was doing well, but when the tide turned the value dipped into the negative zone, making the experience a sour one for the whole family. According to Seshadri, for such investments, a proper due diligence and suitability analysis for the recipient are very important.

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