Top Investment Options for Your Child to Ensure His Future
Financial security for a child is a key responsibility of parents. Financial help is needed at various stages for education and marriage, along with other major expenses in life. Investment in various schemes is required to establish a strong financial foundation. There are various investment schemes available in India that offer security and growth and are thus ideal for planning the future of a child.
Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana is a government-backed saving plan for the sole purpose of securing the future of girl children. Parents or legal guardians can open the account on behalf of a girl child less than ten years of age. The account matures 21 years from the date of opening or on the marriage of the girl after she has reached the age of 18. The scheme earns an interest rate of 8.2% per annum, as of 2025. Deposits should be done in at least Rs.250 and up to Rs.1.5 lakh in a financial year. In addition, the scheme is tax-friendly under Section 80C of the Income Tax Act, which makes it a cost-effective investment option.
Public Provident Fund (PPF)
The Public Provident Fund is a government-sponsored long-term investment scheme. It carries an interest rate of 7.1%, which changes quarterly, and tax on the interest earned is exempt. The investment under this scheme qualifies for deduction from tax under Section 80C. PPF, being locked in for 15 years, is the best scheme for long-term goals such as funding higher studies.
National Savings Certificate (NSC)
The National Savings Certificate is a fixed-income investment scheme that binds individuals, particularly low- to medium-income investors, to save and at the same time enjoy tax concessions. The plan is a five-year fixed-term plan and offers a competitive interest rate, which is updated periodically. The so-earned interest is reinvested and can be claimed for tax deduction under Section 80C. NSCs are regarded as a risk-free savings scheme to save money towards the education of a child.
Unit-Linked Insurance Plans (ULIPs)
ULIPs are investment-cum-insurance products offering life insurance coverage along with profit through investments. Some part of the premium is utilized towards life cover and the balance is invested in debt or equity securities. ULIPs come with a five-year lock-in period with the potential for higher returns based on market movement. They provide relief from tax under Section 80C. However, one should be cautious about the risks and charges involved before investing in these schemes.
Mutual Fund Systematic Investment Plans (SIP)
Systematic Investment Plans (SIPs) allow an investor to invest a specific sum of money at a specified periodic interval in a mutual fund. SIP promotes discipline in money management and harnesses the strength of compounding over a period.
Equity mutual funds, in particular, have the potential to return more in the long run and hence are best suited for goals such as financing higher education. SIPs are not tax-exempt under Section 80C, although certain mutual funds such as Equity-Linked Savings Schemes (ELSS) are tax-exempt. Investing through SIPs is a good way to accumulate wealth, but one needs to be aware of the risks and vagaries of the market.
Fixed Deposits (FDs)
Bank fixed deposits remain a safe and conservative method of investment with assured returns in a specified tenure. The rate of interest might be lower compared to other schemes of investment, but the surety of return and safety guarantee that FDs remain a viable option among conservative investors. Special children’s fixed deposits are also offered by banks to be used to cover the cost of education.
Conclusion
The appropriate selection of investment schemes is based on a correct evaluation of risk, return, and lock-in period. The distribution of investments among various schemes facilitates risk management along with maximizing returns. A planned investment plan assures the availability of funds at the appropriate time for the education of a child and other major milestones in life.
