How to invest for children with special needs? Use the bucket strategy.

Mutual fund experts suggest parents with children with special needs start financial planning as soon as possible.

bucket strategy children special needs

Financial experts suggest parents start financial planning for their children with special needs without delay. It will help ensure the long-term goals are met financially and that the children become financially independent. TBNG Capital Advisors CEO and Founder Tarun Birani says that parents need to understand the care their child with special needs will require. Once that is taken care of, parents must understand at what intervals and how long the specially-abled child will require fund inflows. It would also help plan better if they could know if the child will have a career.

Also Read: Three-bucket strategy for retirees.

The Bucket Strategy

Advisors suggest parents should try the bucket strategy for investment for kids. The strategy is among the best investment for children with special needs. It ensures the child has sufficient funds available at different life stages. The bucket strategy helps parents channel and utilize the available resources efficiently. Jitendra Solanki, the Founder of PlanSpecialNeeds, believes that the bucket strategy ensures the child has enough inflow at any life stage. 

Jitendra Solanki has authored a book specializing in financial planning for children and families having children with special needs. Parents must simultaneously figure out their retirement plans. It requires financial planning for both generations if the child is severely unwell. 

How to use the Bucket Strategy?

Divide the money into different buckets. These four to five buckets can differ according to the child's needs. You can use the first bucket for short-term goals and emergency funds for up to a few years. You can use the second bucket for three to seven years' of expenses. You can use the third bucket for long-term goals spanning over seven years. It will help with the child's financial independence. 

Also ReadHow to create your retirement strategy?

Let's go deeper

Let us understand how to use the bucket strategy and the different buckets. \

Short-Term Goals/Emergency Fund

You can use the bucket for expenses spanning two years. You must keep liquid cash ready for this. You can use this money for medical equipment or emergencies for the child. You can allocate these funds to your bank FD, savings account, or mutual funds. You will not receive any tax advantages with mutual funds if you withdraw the funds before three years. Bank FD interest will be added to your income, and the tax will reflect your slab rate. 

Medium-Term Goals

Financial experts suggest debt funds invest for two to five years. They believe these are tax efficient and have an advantage over bank FDs. You can determine your risk-taking ability and choose the debt scheme accordingly. Choose liquid funds if you are conservative, and others can select short or medium-duration funds. After indexation, debt fund investments for over 36 months will incur a 20% tax.  

Long-term Goals

These are goals for seven to ten years. Most parents having children with special needs are cautious with their finances. However, mutual fund advisors suggest parents invest in equity mutual funds to build a huge corpus. Equities help assets grow at reasonable rates in the long term. You should invest a significant part in equities for life's later stages. The span is seven to ten years. 

Also ReadExit strategies for ELSS.

It is essential to review the various buckets for parents frequently. For instance, if the emergency fund gets depleted, parents must replenish it immediately. If there are any changes in the expenses or goals, parents must undertake the necessary changes and ensure the buckets are sufficiently filled. 

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