Gift Your Child a secure future with the power of compounding

The birth date of India’s first prime minister Jawahar Lal Nehru is celebrated on November 14 as Children’s Day to celebrate his fondness towards children and childhood. The day has become synonymous with childhood as everyone celebrates the innocence and hope that childhood carries.

For every parent whose child is young, there is a hope in them for the child’s future; dreams for making them achieve something spectacular. And all this requires and essential driving force- financial planning. Young parents who are busy raising their child are often concerned about the rising rates of inflation and the impact it would have on their future plans for their child, be it education or marriage or lifestyle expenses.

A wise parent would counter all the factors affecting these expenses and would plan for the child’s future accordingly. There are many investment options and schemes which are tailormade especially for children so that they can be used for their education and marriage and cannot be used by parents for anything else.

Here is a compilation of such schemes, both government and private which a parent can invest to secure his or her child’s future.

1. PPF For Minors

This is a government scheme in which the assured return is at 7.9% and the invested amount as well as the interest comes with a sovereign guarantee which means that the government will ensure that the person gets the promised return. The average rate of inflation in India is at 6percent. Hence, if a person saves for his child’s college fees today, he still may be able to afford it after ten years without adding any extra amount to the same.

2. Sukanya Samriddhi Yojana

This scheme has been implemented by the government of India exclusively for girls below the age of 10 to help parents save money for higher education and marriage of the girl. Any amount up to Rs. 1.5 lakh per annum can be deposited in the account which can be opened from a bank or a post office and the withdrawal from the account can only be made after the child turn 18. The return in this account is 8.3%. Also, the investments made in this scheme is exempted from income tax under section 80C.

3. Children special equity mutual funds  

There are many Mutual Fund providers who have plans curated especially for children’s future goals and dreams. In this as well, the account can be opened under the name of a child and can be operated by the child at maturity. Since mutual funds deal primarily in equity or debt market, the risk factor remains. However, in the longer run, the returns definitely beat those in traditional bank deposits.

4. Insurance Plans

There are many insurance providers which have unit linked insurance products (ULIP) suited for the needs of children in the long term, covering their costs of education and marriage on compounding as well as providing life insurance cover. Money Back insurance plans as well as certain endowment policies are designed specially for children.

Key Takeaway:

All these plans have their own shares of positives and are aimed at giving a good return to children on maturity. An important point to keep in mind while investing s the earlier a parent starts, the better is the opportunity to have stronger returns on investments. Parents also need to keep in mind the tax liability that may arise out of holding these investments for a long term.

In some of these schemes the return is fixed. But in others like mutual funds, the returns may vary. To understand which type of investment would be the most suited for your family and your requirements, you must always take help from a professional investment advisor.

‍