With the high cost of education, healthcare and future expenses such as marriage, planning finances for a child’s future has become a must for every parent. Depending only on savings in a bank account might not be sufficient. Hence it is necessary to explore other investment options.
On the occasion of Children’s Day, let’s take a look at 5 investment options for children.
- Sukanya Samriddhi Yojana: This is a government-backed investment plan for the welfare of girls. An account under this scheme can be opened at any post office or authorised bank until the daughter attains 10 years of age. The annual deposits range from Rs. 250 to Rs. 1.5 lakhs with the current interest rate being 7.6% per annum. The scheme’s tenure is twenty-one years or until the girl child’s wedding, whichever is earlier. Once the girl child attains eighteen years of age, she becomes eligible to operate the account independently.
- Public Provident Fund: PPF is a long-term savings and investment scheme designed to encourage small savings with reasonable returns and income tax benefits. Open to all Indian citizens, including minors, at post offices or authorised bank branches, PPF accounts have a minimum deposit of ₹500 and a maximum of ₹1.5 lakh per financial year, with flexible instalment options. Currently, PPF accounts offer an interest of 7.1% per annum.
- National Savings Certificate: NSCs are another preferred choice for conservative investors, offering low-risk and government-backed assured returns. With a 7.7% annual interest rate offered currently, NSCs have a fixed five-year maturity period, allowing premature withdrawal after one year with a penalty. The minimum investment is ₹100, with no specified maximum limit, and it provides tax advantages under Section 80C. NSCs can be obtained from authorised banks or post offices.
- Fixed Deposits: Fixed deposits are a widely favoured investment option in India due to their guaranteed returns and low risk. FDs provide assurance of returns at a fixed interest rate, ensuring clarity on earnings at maturity. They also offer liquidity with the option for premature withdrawal; however, it can incur a penalty. Investors can also benefit from tax advantages, with deductions of up to ₹1.5 lakh under Section 80C.
- Recurring Deposits: Another low-risk investment plan is recurring deposits. Recurring deposits involve locking in a fixed monthly investment, such as Rs. 1000 for a definite period. You can easily estimate the potential returns based on monthly investments.
- Gold: Gold is favoured for its security and enduring value. Available in various forms like jewellery, coins, bars, gold mutual funds, ETFs, and sovereign gold bonds, gold offers a range of investment options. Additionally, gold serves as an inflation hedge, safeguarding savings from eroding effects. Being tangible, it holds a unique appeal compared to less tangible investments like stocks and bonds.
- Real Estate: Investing in real estate is a long-term option for securing children's financial future, providing opportunities for both capital appreciation and a reliable rental income.
- Mutual Funds: Mutual funds can serve as a beneficial avenue for parents saving for their child's future endeavours. The added advantage of tax benefits enhances the attractiveness of mutual funds. With a focus on long-term growth, mutual funds provide higher return potential compared to traditional savings products. Their user-friendly nature and liquidity, allowing quick conversion to cash, make mutual funds a convenient and flexible investment option for parents.
- Unit Linked Insurance Plans: ULIPs offer a dual benefit of insurance coverage and investment opportunities, allowing parents to grow savings for their child's future goals like education or marriage. With a long-term investment horizon and a 5-10-year lock-in period, ULIPs provide a strategic approach. They grant flexibility in fund selection and premium payments, enabling parents to align investments with their risk appetite and financial objectives. Additionally, premiums paid for ULIPs qualify for tax deductions under Section 80C, offering parents a means to reduce taxable income. However, it's essential to thoroughly assess your financial goals and risk tolerance before choosing a ULIP.
- Life Insurance Plan: Life insurance providers such as LIC offer plans which are specifically designed to cater to children's financial needs. These plans provide a combination of life insurance and savings. They provide your child with financial protection if something happens to you, as well as on the other hand allow you to plan for your child’s future through maturity benefits.
To secure your child’s future, it’s important to start investing early and diversify the investment, keeping in mind the requirements of your children.
Apart from benefits for your children, many of these investment options also provide tax benefits. If you are looking for guidance on tax planning, click here to reach out to one of our Tax Experts.
Disclaimer: The information provided above is only for informational purposes, is based on several secondary sources, and is subject to change. Please consult an expert before making investment-related decisions.