Every parent dreams of securing their child’s future, and a crucial part of this endeavour is planning for their financial well-being. In this comprehensive guide, we will delve into various child investment plans, categorizing them into government-backed and private funds, each offering distinct interest rates.
Government-Backed Child Investment Plans :
Sukanya Samriddhi Yojana (SSY)
The SSY plan is tailor-made to inspire you to save for your child. You can open an SSY account for your daughter anytime from her birth until she turns 10. Key features of the Sukanya Samriddhi Yojana include:
- The account is opened in the name of the girl by her parents or legal guardians.
- Only one SSY account per girl is allowed.
- As of June 2023, SSY offers a competitive 8% p.a. interest rate.A family can have a maximum of two SSY accounts, one for each daughter.The minimum investment amount is Rs. 1,000, with an annual maximum of Rs. 1,50,000.
- The SSY account matures when the girl reaches 21. Furthermore, the SSY scheme provides the unique EEE (Exempt, Exempt, Exempt) tax benefit under Section 80C, offering tax deductions on the initial investment, tax-free returns, and a tax-free maturity amount.
Post Office Term Deposit (POTD)
A highly recommended investment scheme, POTD, is a government-backed savings option that you can open at post offices across the country. It offers the following features
- A lock-in period of 5 years.
- Portability, allowing you to transfer POTD accounts within the country.A competitive interest rate of 7.5% p.a. as of April 2023.POTD accounts can be opened for children above 10 years.
- The minimum deposit amount is Rs. 1,000, with no maximum limit. Interest earned on POTD is added to your total annual income in the year of receipt and is taxed as per your income slab. However, a 5-year POTD qualifies for tax benefits under Section 80C of the Income Tax Act.
Post Office Recurring Deposit (PORD):
For parents seeking a disciplined way to invest in their child’s future, the PORD is a prudent choice. Some notable features of the scheme include:
- Variable interest rates, currently offering 5.8% to 6.8% p.a. compounded quarterly for a 5-year term.
- Flexibility to extend the PORD after the initial term.
- It can be opened for daughters above the age of ten, with you as the guardian. The PORD scheme offers a risk-free investment backed by the government.
National Savings Certificate (NSC):
You can easily invest in govt backed NSC funds for your child’s financial security . Additionally it offers many benefits .
Key features of NSC include:
- A 5-year tenure.
- A minimum deposit of Rs. 1,000, with no maximum limit.
- An attractive interest rate of 7.7% p.a.
- Tax benefits under Section 80C, risk-free returns, and ease of transferability.
Public Provident Fund (PPF):
PPF is a versatile savings option that also aids in tax-saving and retirement planning. It offers high returns, making it an excellent choice for securing your child’s financial future.
- A minimum tenure of 15 years, extendable in blocks of 5 years.
- Variable interest rates subject to change and varying from bank to bank.
- A minimum investment of Rs. 500, with a maximum annual contribution of Rs. 1.5 lakh.A nominal Rs. 100 is required for account opening.PPF accounts can be in the name of one person only, with no provision for joint ownership.
- PPF is characterized by minimal risk, the EEE tax feature, and a 15-year tenure, making it ideal for long-term planning for your child.
Private funded Child Investment Plans
Children’s Gift Mutual Fund:
You can invest in these funds for accumulating a substantial corpus for your child’s life. Additionally these mutual funds offer the following advantages:
- Children’s Gift Funds are hybrid or balanced funds investing in a mix of equity and debt instruments.
- Funds remain locked until your child reaches 18, promoting long-term appreciation and flexibility to invest in a combination of debt instruments and equity stocks based on your preferences.
Mutual Funds via Systematic Investment Plan (SIP):
SIPs enable you to invest a predetermined amount monthly in mutual funds to secure your child’s future. Here are some of their features:
- A predefined monthly investment deducted from your account.
- The flexibility to invest in multiple SIPs simultaneously.
- A low initial investment starting at just Rs. 100 per month.Options to invest in equity, debt, or mixed funds.
- SIPs offer the advantages of compounding, rupee-cost averaging, and superior long-term returns compared to a recurring deposit.
Gold ETFs:
Traditionally favored for investing, Gold ETFs offer an efficient alternative to physical gold investments. Their features include:
- Gold ETFs, similar to mutual funds, can be conveniently purchased online.
- Each Gold ETF unit is equivalent to one gram of gold.
- Gold ETFs are open-ended, allowing you to enter and exit as per your choice.
- Unlike physical gold, investing in Gold ETFs eliminates the hassles of safety and storage, making it accessible for small investments and portfolio diversification.
Unit Linked Insurance Plans (ULIP):
ULIPs merge life insurance with investment, presenting multiple advantages, particularly for securing your child’s future:
- Child ULIPs offer triple benefits, including monthly payouts for the child’s expenses in the event of the parent’s demise.
- The insurer covers future premiums, ensuring continuity in investment even when the parent is absent.
Fixed Deposit:
Fixed deposits are akin to the ‘vanilla ice cream’ of the investment world, offering stability, safety, and liquidity. You can open an FD for your child in a bank or non-banking financial corporation. Here are some of its features:
- An FD can be initiated with as little as Rs. 1,000.
- Terms generally range from a few months to 10 years, providing flexibility in choosing the duration.
- Various interest payout options are available, including at maturity, monthly, quarterly, or annually.
Conclusion
In conclusion, securing your child’s financial future is a priority . Whether you opt for government-backed funds or private child investment plans , the key is to initiate early. Invest wisely, and witness your child’s dreams come true. Every child deserves a financially secure future, and with the right investment plan, you can make that a reality. Start building your child’s financial foundation today.”
