The best present one can offer a child is to invest in his/her future. The right child investment helps your little one fulfill their goals and aspirations. In this blog, we will discuss the best six-children investment plans in India for planning & securing your child’s future.
Why Invest for Your Child?
One of the best things you could do for your child is to set him up with a good investment early. A few key reasons child investment plans should be an important part of your financial planning are mentioned below:
- Start early: The earlier one begins investing, the more one allows the power of compounding to work on his investment. Compounding can multiply your child's wealth.
- Fund Major Mile: Child investment plans help you to save a corpus to fund a significant milestones such as higher education, weddings, housing deposit, and so on.
- Financial Discipline Inculcated: The child learns financial discipline as he or she knows that the parent is investing in his or her name for the future.
- Inflation Beating: Child investment must beat inflation and preserve the purchasing power of money accumulated over the years.
- Reduced Financial Burden: A substantial corpus translates into that much reduced financial burden on your income at a later date to fund major child-related expenses.
- Life Goals Realisable: The right child plan ensures financial security for your child so that your children's life goals and dreams are realisable in the future.
Top 6 Best Child Investment Plans in India
Following are the top 8 investment options to secure the future of your child:
1. Sukanya Samriddhi Yojana
In 2015, the Indian government launched a saving scheme known as Sukanya Samriddhi Yojana, which was intended to encourage parents to save leftover money for their daughters' education and marriage. When a girl child reaches the age of ten, a parent or legal guardian can open an account in her name under this program. Along with tax benefits, the account offers an interest of 7.6%. The maximum deposit limit for the year is ₹1.5 lakh, and the minimum is ₹250. At the age of 21, when it matures, she can withdraw all the money to spend on her marriage or more studies. Sukanya Samriddhi Yojana aims to empower girls by educating them and providing financial liberty to society.
2. The Public Provident Fund
The Indian government promotes the Public Provident Fund as a saving and investment scheme. It offers income tax benefits in addition to fixed-rate returns. The programme can be lengthened into 5-year steps with a fifteen-year maturity time. For every financial year, the minimum and maximum investments are ₹500 and ₹1.5 lakh, respectively. The rate of interest, which currently stands at 7.1 percent, is structured by the government every quarter. Both the total maturity and interest collected are entirely tax-free. In addition, Section 80C of the Act provides for a deduction on annual investments up to ₹1.5 Lakh only. PPF is a reasonable investment for conservative investors looking for constant, steady dividends and tax savings.
3. Equity Linked Savings Scheme
A tax-saving mutual fund investment, the Equity Linked Savings Scheme is a high-return child investment scheme that offers deductions under Section 80C of the Income Tax Act of up to Rs. 1.5 lakh. ELSS funds have a three-year lock-in period and invest at least 80% of their capital in stocks. These funds may provide larger returns than other fixed-income tax-saving choices but also involve a medium to high risk. Both systematic and lump sum investments are accepted under ELSS. These funds are a solid choice for retirement planning because of their ability to compound over a lengthy period. ELSS offers tax advantages and stock market exposure to build long-term wealth. On the other hand, market circumstances and fund management affect performance.
4. ULIPs for children
Unit Linked Insurance Plans, popularly called child ULIPs, are purchased explicitly for children. These plans also offer investing avenues apart from the insurance cover to build funds for the child’s future needs. Child ULIPs may have five-year lock-in periods. Consider how long you'll need the coverage before deciding on a term duration. Terms of 20 or 30 years are popular. The money is allocated among debt and equity securities according to the selected fund type. The youngster gets the value of the money that has accrued over the years at adulthood. After the age of 18, partial withdrawals are permitted for requirements related to higher education. Section 80C provides tax advantages for the paid premiums. Child ULIPs aims to safeguard the child's future by generating money and providing insurance protection during critical life stages like marriage and further education.
5. Child Mutual Fund SIP
A kid's systematic investment plan, or SIP, is a monthly mutual fund investment intended to create a corpus for the child's future requirements. Parents or guardians may start child SIPs for a minimum of ₹500 per month for a reasonable duration of 10 to 15 years. The SIP amount is allocated to hybrid or equity funds depending on the investor's risk tolerance. Over time, equity funds have the potential to provide returns that exceed inflation. Since the kid has time on their side, the power of compounding works well for kid SIPs. After the kid reaches 18, parents may withdraw entirely to cover marriage-related costs or partly to fund objectives like further education. Child SIPs assist in securing the child's future in a disciplined way. Additionally, they support the early instillation of investment and saving behaviors.
6. Fixed Deposits
Parents and grandparents may form fixed deposits in their children's names as a secure investment alternative for their future requirements. These FDs provide assured returns that are independent of market fluctuations. Interest rates vary from 5.5% to 7%, depending on the duration. Better returns are obtained over longer terms (5–10 years). As per the child's income tax slab, which is zero, up to Rs. 2.5 lakhs annually, the interest generated is taxable. Because FDs have a minimal minimum investment amount of ₹1000, anybody may invest in them. For a nominal fee, parents may remove their children early to attend to their educational or medical requirements. All things considered, kids' FDs assist in avoiding market dangers and helping to create a corpus for important milestones disciplinedly. The assured returns provide financial stability.
How to Choose the Best Plan for Investment for Your Child?
Here are some tips to make the best child investment plan:
- Risk Profile: Risk tolerance and expected returns must be assessed before going in for any investment instrument. In equity, one is exposed to higher returns over the long tenures but carries the accompanying volatility with it.
- Investment Horizon: Align the lock-in and duration of investment to the important life events and goals of the child.
- Costs: Opt for a plan with lower fund management charges, premium allocation charges, etc., to enhance the returns.
- Liquidity: Check if you need the flexibility to withdraw money for contingencies and children's school fees before locking in. - Tax Benefits: Save on tax under sections 80C, 80TTA, etc., but don't let tax saving be the sole criteria.
- Child's Choice: The child will be given a choice to take a matured amount either for higher education or housing.
- Financial Discipline: An automated investment like SIP, or RD are not only financial discipline but involves a small amount regularly as against a lump sum.
Some Expected Tax-advantaged Child schemes are:
- Deduction under Section 80C: Upto Rs. 1.5 lakh invested in PPF, SSY, and ELSS qualify for deduction under Section 80C.
- Exclusion for capital gains: Gains below Rs 1 lakh in a fiscal year do not incur long-term capital gains tax on sales of debt MFs held for more than three years and equity MFs held for more than one year.
Conclusion
It starts early with proper planning in place; it can ensure your child's financial independence and the ability to pursue his or her dreams the way he or she wants. These child investment options help gather quite a corpus via the power of compounding over the long term. Select a plan according to your appetite for risk, time frame, liquidity, and needs of saving tax. Remain invested and systematically keep increasing the investments to realise maximum future wealth for your child.