As a parent, there are several investment options for your child’s future that you could be looking at. Child investment plans will be the one where you earmark savings to be used for a child’s financial needs such as education or marriage. It is always better to start saving early for a kid’s needs. Also, rather than investing in any one child plan, one may diversify across several children schemes to create a corpus for them.
Here are a few important investment options for child savings.
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is an investment that earmarks funds exclusively for the needs of girl child. SSY, a 21 year scheme, can be opened in the name of girl child below 10 years only. Premature closure of the scheme is allowed after 5 years only on medical grounds. Also, when the girl turns 18, a maximum of 50 per cent of the account balance of the preceding year may be withdrawn for the purpose of higher education of the girl. Further, the rules permit final closure anytime after a girl turns 18 years for the purpose of her marriage. The investment qualifies for tax benefit under Section 80C and the interest earned is tax exempt.
Public Provident Fund Account (PPF )
Public Provident Fund Account (PPF ) is a 15-year scheme that requires regular contributions to be paid for 15 years. One may exit from PPF after 5 years or avail a loan from 4th year and even make partial withdrawals after 7th year. One is allowed to open only one account in own name while another PPF account may be opened in a minor child’s name. The minimum of Rs 500 and maximum of Rs 1.5 lakh ( self plus minor account) in each financial year can be deposited in PPF. The investment made in PPF qualifies for tax benefit under Section 80C and the interest earned is tax free.
Equity mutual funds
Investing in equity mutual funds for children’s goals that are at least seven years away can be considered by young parents. Build a core portfolio with consistently performing schemes across large-cap and mid-cap funds. Some portion may also be put in index funds and other in mid-cap funds but importantly keep a separate portfolio for child goals and continue investing till about three years away from the goal.
Life insurance plans with waiver of premium (WOP)
There are specific life insurance plans with waiver of premium (WOP) rider or benefit that suits investing for children needs. The feature of Waiver of Premium in a life insurance policy ensures that the policy does not end or become inactive even after the death of the policyholder or due to the inability of the policyholder to pay the premium. The insurer pays the sum assured and also keeps putting in the premium into the plan on the due date. This ensures the fund value is for the child at the desired age.