Every child starts dreaming about building castles at a very young age and as responsible parents, it is your duty to start putting together the bricks for that castle early in life. If you are reading this, we are convinced that you are concerned about your child and his/her future.
Now, the top most obligation of the parents towards your child is to financially secure his/her future. And this is possible by finding the best investment options for your child that will help you finance their prime moments and significant turning points in life such as higher education and marriage.
Considering the rate at which inflation is taking a toll on education, the costs of education are going to cross some dangerous limits in the coming years. Currently, a standard MBA degree from the top-notch business schools in India costs you somewhere between 5-8 Lacs.
Keeping in view the current inflation rate, these education expenses are only going to rise exponentially making education a luxury only a few would be able to afford. Therefore, you need to know why financial planning for your child’s future is important.
Here are a few preeminent investment plans for a child in India:
Invest in PPF: Investing in PPF is considered the best option by a large number of financial experts. It lets you lock in your money for a period of 15 years which makes it an appropriate option in terms of investment for your children’s future. The current interest rate of the PPF investment is 8.15% which is far better than the 7% interest rates of banks. Apparently, the interest earned is also tax-free and offers a tax rebate (under section 80C) of up to Rs. 1.5 Lac.
Invest in Gold: Typically, it has been seen that during longer terms, an investment in gold generates a good deal of returns than many other assets. However, investing in gold through ETFS or E-Gold is considered a much better option than investing in physical gold because it does away with the need for lockers and storage charges.
The benefit here is that during a period of 10-15 years, you can earn decent gains through small investments resulting in a sizeable one later. Nonetheless, no more than 15% of your overall investment portfolio should deal with the investments in gold.
Sukanya Samriddhi Scheme: It is a central government’s initiative and as the name suggests, this scheme is solely for the girl child. The interest rate, though subject to change is an attractive 9.2% currently. The interest earned is tax-free and avails the benefit of tax rebate under the Section 80C of Income Tax Act.
From the time of birth until the age of 10, parents can start investing any time. Under this scheme, deposits are made for a period of 14 continuous years however, the maturity happens after 21 years of opening the account.
Invest in Equity Mutual Funds: Talking about decent returns over longer periods, mutual funds have a proven track record. The Systematic Investment Plan (SIPs) offered by way of mutual funds is one chief reason for the growing popularity of investing in Mutual funds.
You don’t exactly earn from the amount invested but from the power of compounding which needs sufficient time. Therefore, the more the time invested, the more you benefit from this investment in equity mutual funds through SIP. SIP also offers the most convenient way to average out the cost over the period of time.
Invest in Recurring Deposits: This is, however, not the hot-favorite of financial experts or investors but investing through Recurring Deposits is one of the low-risk options to create an investment plan for your child’s future since the interest rate is not guided by market situations.
The current interest rate for a Recurring Deposit is somewhere near 9% and imagine how much you would reap after 10 years if you invest around Rs. 5000 a month.
Invest in Debt avenues for short term needs: A lot of child’s major needs are long term based such as higher education and marriage but there are many short-term needs that require continuous work and investment. These include the medical bills, clothing, uniform expenses and school fees.
If you are only investing in long-term funds such as PPFs and equities, you will have the deal with the risk involved during short-term withdrawals. Therefore, you can choose debt instruments like bond funds, FDs, income funds and short-term funds to avoid bearing the market risk. The returns may not be enormous but the risk involved is comparatively extremely low.
Hence, these were some of the 6 Best Child Investment Plans in India which can help you reap the maximum benefits for your children covering all their needs of future.