Many might be putting money aside for their children's goals but without making the right investment choices, many miss out on getting the most out of these investments.
All parents want to offer a secure and quality life to their children, which comes with proper financial planning. Many might be putting money aside for their children’s goals but without making the right investment choices, many miss out on getting the most out of these investments.
Here are some of the best investment options for parents to look at to invest for their child;
Systematic Investment Planning (SIP) – Investing through SIP is suggested because of its simple mode of investment and comes with a longer time-frame of 10 to 15 years. Due to the compounding power, the returns usually beat the inflation rate, hence, the time-frame of investment is more important rather than the invested amount. For instance, assuming 12 per cent annual returns, a monthly investment of Rs 5,000 in mutual funds for 18 years can fetch approximately Rs 19.5 lakh. Investments through SIP in a mutual fund, with a well-diversified portfolio for the long term, can easily make you meet future financial goals such as a child’s higher education or marriage.
Public Provident Fund (PPF) – The Public Provident Fund scheme has always been popular due to its tax benefit, EEE (exempt, exempt, exempt) feature. The investment amount is allowed for tax deduction, while tax is not levied on the returns earned through accumulation, and the total amount withdrawn at maturity is also tax-free. Funds are deposited in PPF accounts for a fixed time period of 15 years, and the interest rate offered is 7.1 per cent currently. Experts suggest as this investment option comes with a long tenure, it can be used to reach goals like a child’s marriage or higher education.
Term Insurance Cover – This will secure the child against any unforeseen event. Having a proper term insurance cover reduces the financial impact on the lives of the dependents in the absence of the bread-earner. Having a term insurance plan could cover all major expenses of a child, such as schooling, higher education, marriage, etc.
Sukanya Samriddhi Yojana (SSY) –This is exclusively for girl children. Parents/guardians can open an SSY account up to the age of 10 years of the child. A minimum investment of Rs 1,000 and maximum Rs 1.5 lakh annual investments can be made for the tenure of 15 years. However, the maturity period for the account would be 21 years from the day of account opening. This offers an attractive interest rate, that is subject to change quarterly. SSY is also eligible for EEE tax exemptions under Section 80C. The current rate of interest offered is 7.6 per cent. Hence, this scheme can be used for a girl child to meet her higher education and marriage needs. The scheme also allows partial withdrawals after the child attains 18 years of age.
Debt Funds – Debt funds are a type of mutual fund that invests in various deposits or bonds. Debt funds are ideal for risk-averse investors as it carries a low risk. The short-term debt funds can deliver up to 6 to 8 per cent annual returns, and are more flexible and allow withdrawal or investments whenever required. Returns from these investments can be taxed at a lower rate if the income from mutual funds is invested for at least 3 years. This investment option can be used for a child’s recurring expenses like school fees, clothing, transport, extra activities, etc. especially due to the liquidity and safety of the deposited amount.