All parents wish to provide a stable and comfortable life to their children. Not just that, they work to ensure a comfortable and secure future for them as well. In a world where expenses and the cost of education are rising exponentially, it is crucial to start saving early.
Investments are what compounds your earnings. Apart from the basic plans, you may also start stock investing for your kids. The opportunities are endless. Let us go through some popular child savings options available today.
A child savings bank account is a traditional banking investment that parents in India have been resorting to for many years. The parents act as a guardians/trustees of the account until the child attains 18 years of age. The parents may deposit money into this account that earns regular and stable returns. The difference, however, is that a child bank account may have withdrawal limits.
Fixed deposits are another investment product for child-investment. FDs may be a good option to explore as long-term investments for children that provide safety and high returns. They involve low risk and offer an interest rate free from market fluctuations. Almost every bank offers a fixed deposit scheme.
The best part is, a savings bank account with the bank is not a compulsion to open an FD with them. Many banks have special FD schemes for children. This usually comes without the premature withdrawal option and a few even has insurance cover. In an RD, you make regular small investments that provide a fixed rate of interest. But the return could be lower than an FD.
There are children-specific insurance policies in the market. These often come with life cover and death benefits. The policyholder pays a regular premium and the invested amount is compounded over the years. At maturity, the amount is returned in a lump sum. This can be utilised to cover major expenses such as education, and marriage.
The insurance policies also come with tax benefits. You can claim deductions under various sections of the Income Tax Act, 1961. Moreover, all benefits gained – including death benefits and the maturity amount – are free from tax upto certain limits.
The Public Provident Fund is a government-backed scheme. The interest rate is declared by the government every quarter. PPF offers a higher rate as compared to fixed deposits or savings accounts. It has a maturity period of 15 years. As for tax benefits, PPF is an Exempt-Exempt-Exempt scheme. This means that the principal, interest, and benefits earned are tax-free. This in conjunction with the long lock-in period makes PPF a perfect tool for savings for long-term for children.
Gold is an valuable asset because of its non-depreciating nature. This makes gold a good hedge against inflation. In addition to physical gold such as jewelries and coins, there are digital options available as well. These include Gold ETFs (Exchange Traded Funds), SGBs and gold mutual funds.
Digital gold investments are usually safer as it comes with no extra cost of storage and security. Further, it doesn’t involve making and wastage charges. It is more liquid as you can sell the ETF or mutual fund units in the stock exchange.
Mutual funds are risky investments, but also offer a high return. There are two ways to invest in a mutual fund. You can go for the lump sum payment or start a SIP. A Systematic Investment Plan (SIP) deducts a set amount from your account every month. This money is then invested in a professionally-managed mutual fund.
There are mutual fund plans specifically designed for children as well. They are mostly hybrid mutual funds with varying allocation to equity and debt that investors may choose as per their risk tolerance. Some examples are: ICICI Prudential Child Care, Axis Children’s Gift Fund, UTI Children’s Career Plan (CCP), and SBI Childrens’ Benefit Fund
ULIPs are a combination of insurance and investment. Like any other insurance policy, you pay regular premiums. The difference is that a part of the premium is invested in market-linked products. It is a great opportunity when investing for children.
A ULIP-based child plan can help you meet the costs related to your child’s education or marriage. And in an unfortunate case of death of the policy holder, the child receives a lump sum or regular payments as per policy terms. Additionally, some plans come with premium waiver in such cases. This ensures that the child continues to receive payments to meet educational costs.
Sukanya Samriddhi Yojna is an investment plan for a girl child in India. This was started by the Government of India. The SSY can be opened when a girl child is born or before she reaches 10 years of age. It can be opened at any post office or authorised commercial bank.
The tenure of the scheme is 21 years or until the girl gets married. After attaining 18 years of age, she may operate the account herself.
The rate of interest is declared by the government every quarter. The current rate is 7.6% per annum. At maturity, the compounded amount is handed over and can be used for the education or marriage of the girl child.
Disclaimer: The views expressed in this post are that of the author and not those of Groww
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