New Delhi: If you are planning to have kids, just saving money is not enough. Education, healthcare has become costlier and just saving money will not help you accumulate enough money to provide quality education and facilities to your children in future. You need to invest in options that offer inflation-beating returns. Financial planners say that it’s always better to invest in your children’s name.
So that when the time comes, they can fund their higher education from it. Your child’s investment gets well-directed if it is done in their name. If you invest in your child’s name, that is the last investment you will liquidate in case you need money.
If you are planning to invest for your child, here are three options for you:
1. Sukanya Samriddhi Scheme: This scheme is an extremely good investment option for those who have girl children. An SSY account matures in 21 years, while the contribution period of the account is 15 years. Partial withdrawal is allowed for higher study once the beneficiary girl child turns 18. Once can close SSY account prematurely before 21 years if the beneficiary girl gets married after 18 years of age. SSY deposits fetch 7.6 per cent.
If a person makes a contribution of Rs 12,500 every month (Rs 1.50 lakh every year) in the SSY Account for the full contribution period of 15 years without any premature withdrawal, then the savings would have grown to Rs 71,27,574 assuming that the interest rate remains constant at 8.4% for the entire investment and maturity period. SSY contributions are eligible for tax deductions under section 80C.
2. PPF: PPF is another good long-term investment instrument with a maturity period of 15 years. Many banks in India such as State Bank of India and ICICI Bank offer the facility to open a PPF account. If you have online banking facility then you can open PPF account online. One can invest between Rs 500 to Rs 1.5 lakh per year in PPF.
PPF currently offers an interest rate of 7.1 per cent. One can also open a separate PPF account in the name of their minor child but the combined investment in both the PPF accounts can not exceed the annual limit of Rs 1.5 lakh. PPF contributions are eligible for tax deductions under section 80C.
3. Mutual Funds: Started a systematic investment plan is another good investment option. Equity mutual funds are best suited for wealth creation in the long term. Since children’s education and marriage are long term goals, one can invest in equity mutual funds for these goals. Parents have to open a mutual fund folio in the name of the minor child as MF investments can not be held in joint names. Also, since minors are not allowed to enter into a financial contract, either parents or legal guardians will be the custodian of that account.
The minor will be the sole and first holder of the account. The amount for investment can only come from the parent’s bank account or from the minor child’s account, which is under the designated guardianship. In case of investment through a SIP, all minor SIPs will cease to exist on the minor attaining 18 years of age.