Providing good education to children are the prime concern for parents. The high rate of inflation in the education sector adds to the concern, as parents need to keep a corpus ready to ensure that their children don’t miss a golden opportunity due to paucity of funds.
Apart from education, marriage, accommodation etc are some other financial goals, for which proper planning and investments are also needed.
To fulfill the dreams, ensuring financial security is also important to ensure that the goals are achieved even in case of unfortunate early demise of the earning parent(s).
Here are the pros and cons of investing in Sukanya Samriddhi Yojana (SSY) and Child Insurance Plans to secure your child’s future:
Sukanya Samriddhi Yojana
The parents or legal guardian of a girl child may open a Sukanya Samriddhi Yojana Account till the girl becomes 10 years old.
With sovereign guarantee, SSY is fully risk-free and provides an attractive rate of interest even higher than the rate offered on the Public Provident Fund (PPF).
The maturity period of SSY is 21 years and deposits are to be made for 15 years. Partial withdrawal of 50 per cent of the outstanding account balance is allowed when the girl child attains the age of 18 years, which may be used for study purposes.
Even as the maturity period is 21 years, an SSY account may be closed prematurely and the entire balance may be withdrawn if the beneficiary girl child gets married after attaining 18 years of age.
Investments in SSY accounts enjoy tax benefits u/s 80C, while interest and maturity amount are completely tax free.
SSY accounts may only be opened for girls. So, for boys, parents need to select other investment avenues.
With rate of interest revised quarterly, the maturity amount may fall short in case of rate cuts.
In case of the death of an earning parent, investments in SSY will get stopped, derailing the goals of a beneficiary girl child.
Child Insurance Plans
Like SSY, the Child Insurance Plans are also aimed at fulfilling the financial requirements for higher study, marriage etc of children.
The Child Insurance Plans generally come with the option of Premium Waiver Benefit (PWB), which ensures that a policy continues without paying premium in case of unfortunate demise of the earning parent(s).
Such an insurance plan may be taken for both girls and boys.
Parents have the flexibility of choosing the maturity period and in some cases also money back mode and period.
Like SSY, investments in Child Insurance Plans also enjoy tax benefits u/s 80C and the maturity and money backs are also tax free.
With lower bonus rate, parents need to opt for higher Sum Assured (SA) to meet the financial requirements, leading to high premium payouts.
Which one to opt for?
With sovereign guarantee, attractive rate of return and complete tax benefits, SSY is a good risk-free investment option for girls.
As investments in SSY may get derailed in case of unfortunate early demise of the earning parent(s), taking insurance cover is also necessary.
However, instead of relatively costly Child Insurance Plans, parents may opt for cheaper Term Insurance Plans to insure the life of the earning parent(s) and invest the remaining amount in Mutual Fund (MF) or other investment options giving superior returns.