Want to invest for your girl child? Few investment options and some tips

By: | Published: September 28, 2016 3:57 PM

To decide how much you need to invest for your girl child, you should focus not just on the corpus needs but also on the inflation impact.

Want to invest for your girl child? Few investment options and some tipsInvesting for your girl child: Invest in instruments which are safe, allow good returns, and help you to achieve your goals. (Representative Image: Reuters)

Caring and planning for a child’s future is the foremost of a parent’s responsibilities. To plan for your girl child’s future, you’re going to have to calculate and create their future fund requirements for higher education, her pursuit of personal interests, and marriage.

Specifically speaking for the girl child, there are some investment products tailored to benefit them. Let’s have a look at why planning these investments are necessary, and how you could achieve your fund requirements.

Why is an investment plan necessary?
The future can hold uncertainty and surprises. You would not want your children to bear the brunt of these uncertainties. Today you might be earning a handsome income, but who knows what the future holds for your family. You not only need a stable income, you also need your income to keep growing, without which it would be difficult to keep fulfilling the wants and needs of your children.

Purpose of an investment
Investments of any kind must have an objective. Such objectives could be broken down into three types: short, medium, and long-term objectives. You must break down your child’s objectives into those three brackets, and start investing accordingly. You must also assign priority levels to each objective, so that more resources could be diverted towards achieving the objectives with the highest priority.

For example, if your daughter has a must-do medium-term goal about attending a sports camp abroad in the near future, you must calculate your fund requirements and invest accordingly.

Where to invest
Invest in instruments which are safe, allow good returns, and help you to achieve your goals. The selection of investment asset should be based on the investment tenure. The short and medium term goals could be events like school fees, vacations, higher education, health security, tuition fees, buying a vehicle, etc. Her long term goals could be exploring career options, setting up a business, planning for marriage and post-marriage expenses.
You can expect goals like education and marriage to be the weightiest, therefore you must divert a sizeable part of your investments towards these.

You could pick from the many available instruments in the market and mix them with some girls-focussed instruments as well. Which instrument you pick will be decided by the size of the goal, the investment horizon (when you expect to redeem the investment), returns and liquidity factor.

Let’s check out some investment options for the girl child.

Sukanya Samriddhi Scheme (SSS)
The SSS is a long-term savings scheme focussing on the girl child. Currently, the scheme offers annual returns of 8.6%, which is much higher than other government-provided instruments such as NSC (8.1%), PPF (8.1%), Kisan Vikas Patra (7.8%), endowment policies which offer returns in the range of 5-6%, and fixed deposits which are earning less than 7.5%. You are allowed to invest for up to two girl children and the investment account should be opened before she attains the age of 10 years. The investment can be made till 15 years of age. You can deposit a maximum Rs 1.5 lakh per year in the SSS. You need to deposit a minimum of Rs. 1000 annually to avoid defaulting. If you don’t deposit this minimum amount, it is then subject to a penalty of Rs. 50 per year for which there is a default. The amount deposited under the SSS is also eligible for tax deduction under Sec 80 (C) subject to a limitation of Rs 1.5 lakh. The maturity period of investment under the scheme is when the girl attains an age of 21 years. You can opt for this investment scheme for long term goal based on safety, average return and tax benefits.

Mutual Funds
If you do not want to mix your own investment with the funds you’re planning for your children, you can start a mutual fund SIP in their name. You will not get personal tax benefits by doing this, but it will allow you take on ambitious fund-raising goals, since remaining invested in equity funds over the long-term can easily provide annualised returns in the range of 10-15%. You can diversify your investments in debt and equity plan depending upon the nature and tenure of the investment goal. You can afford to assume a higher degree of risk for long-term goals. You can invest in equity fund SIPs with a mix of mid cap, large cap and blue chip fund for high returns. In debt funds, you can invest in liquid funds for short term goals and debt funds for medium, or even long term goal, if you’re not inclined to take risks with equity.

Debt Saving Instruments
Assuming you have maximised your investments in the SSS, and there’s a further need for you to invest in secure instruments, you must consider PPF, postal saving schemes, and bank fixed deposits. They provide safe returns for short, medium and long term period. PPF has a lock-in period of 15 years, therefore you must plan a long-term goal like higher education and marriage with it. You can include recurring bank deposits with different tenures to meet short to medium term requirements. Select instruments that offer the highest returns and can beat the prevailing inflation rate. Higher the return over the inflation rate, the easier you’ll find to meet your expenses in the future.

How much should you invest?
To decide how much you need to invest for your girl child, you should focus not just on the corpus needs but also on the inflation impact.

Let’s understand this with the help of under-mentioned illustration:


To achieve this difficult-sounding goal, you must start investing at the earliest. This would allow you to beat the effects of inflation in the long term, even as the effect of compounding accelerates your corpus achievement.

The author is CEO, BankBazaar.com

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