There is no way you can be careless when it comes to investing for your children’s future. Starting early helps as it allows adequate time for your investments to compound, thereby, earning great returns in the long run.
Apart from investing, you must be careful of how much corpus you wish to have at what phase of their lives to ensure continued fund flow at every stage of their careers. This means that you must have enough to pay for their school and college education while also setting aside to pay for the higher education or professional courses they insist on pursuing.
When it comes to financial planning to secure your child’s future, the following investment options can help:
Sukanya Sammriddhi Scheme (SSS)
If you have a girl child, you may consider putting money in it before she turns 10 years old. The minimum deposit mandated in a year is ₹250. You can make a maximum investment of ₹1.5 lakhs in this account in any financial year. This account can be opened at any post office or nationalized bank, thus, allowing you easy access to this investment. The deposits made in this account qualify for tax deductions under Section 80C of the Income Tax Act, 1961. Currently, these deposits offer an interest rate of 7.6 per cent annually.
Public Provident Fund (PPF)
Anyone who is an Indian citizen can open a PPF account in their minor’s child’s name. Since the child is a minor, the legal guardians can operate his or her account until he or she turns 18. However, you can open only one PPF account in your child’s name, which means two PPF accounts only if you have two children. The interest rate on PPF deposits is 7.1 per cent while its deductions are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
Fixed and recurring deposits
These are the most preferred options by investors. Ironically, despite the huge number of investment opportunities opening up to investors these days, people still prefer to secure their earnings in FDs and RDs. The recently rising rates in them have prompted more people to move their money into these secured investment deposits though the returns are not enough to mitigate the rising effect of inflation.
If you are keen on investing for your kids, a children’s fund can best serve their interests since the money is invested in stocks and equities, thus, lending you the benefit of earning high returns. If you are a new investor and are not sure of which mutual fund to choose, you may as well put your money in an index fund or a large-cap fund that is relatively stable, earn good returns and allow you to benefit from the effect of compounding in the long run.
Sovereign Gold Bonds (SGBs)
These are the most underrated investment options considering how very few investors recognize gold investments as an effective hedge against inflation. SGBs allow you to invest in gold and earn an interest rate of around 2.5 per cent every year on the face value as well as capital appreciation. You can invest in gold ETFs through the SIP mode.
Buying an insurance policy
Start with buying a Unit Linked Insurance Plan (ULIP). You can put money in a ULIP by allocating the debt and equity portions in accordance with your risk tolerance and return expectations. ULIPs also provide life insurance and tax benefits under Section 80C. Long-term investors seeking multiple benefits in a single investment product may find ULIPs to be an excellent choice.
Second, you may opt for a term insurance plan, thus, securing the future of your loved ones even in your absence. A life insurance cover is a necessary addition to your investment portfolio so choose the one that allows you an adequate life cover at affordable premiums.
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First Published: 14 Dec 2022, 08:03 AM IST