The best gift a parent can give to their child is to invest in their future. The right investment plan can help your little one(s) to fulfill their goals and ambitions. Child investment plans can be opted for different aims, such as for a child’s education, marriage, healthcare, and more. In this article, we will discuss how child investment plans can secure your child’s future and different investment plans available in India.
Benefits of Investing in a Child Investment Plan
Child investment plans ensure that your child leads the same life, without his future being affected, even when you’re no longer around. Additionally, there are numerous investment plans for senior citizens that we have previously discussed, which you may also explore further. Let’s return to the main topic, the top benefits of investing in child investment plans are enlisted below.
Helps to fulfill your child’s future goals
Child plans not only serve the purpose of investment but also insurance. Before you opt for any child plan, it is crucial to calculate your expenses at present, analyze future expenses and save up to collect funds for financial goals of your child, such as their marriage, education, and other expenses during different stages of their life. In the beginning, it may seem a bit complicated to pay the premiums periodically but eventually, you will become habitual to it and will be able to help your child to fulfill his goals when he grows up.
Covers the education fee of your child
With time, the cost of education has become really expensive. Every parent wants their child to have the best of education, so that the child can ultimately get a good career. A child’s future is a matter of concern for every parent. Every parent wants their child to have a high-quality education whether in India or abroad. Therefore, investing in a child investment plan can be extremely beneficial for your child so it can pay for the education fee without providing you too much stress.
Serves as a collateral for obtaining loans
Investing in a child investment plan can be beneficial for buying a personal loan or education loan for your little one. It can be counted as a collateral by most banks for obtaining a loan. If your child wants a large amount of money for enabling higher education abroad, it can be a good idea to invest in a child investment plan, such as a Fixed Deposit.
Provides coverage even after the parent’s demise
Death is inevitable. This is why it is the parent’s responsibility to secure their child’s future, so that the child does not struggle to complete his education or build a career in case his parent is no longer around. Child investment plan is one of the best ways to secure the future of your child. Many insurance companies provide a waiver on the premium in case of untimely demise of any of the parents.
Top 5 Child Investment Plans available in India
In order to secure your child’s future, here are the top 5 child investment plans available in the country:
1. Fixed Deposits (FD)
People have FDs in banks and post offices for different reasons. It is a good idea for the parents and grandparents to create FDs for their children/grandchildren which can meet their financial requirements in future for education, marriage, etc. FDs provide fixed and assured returns on the amount invested and are not impacted by the market fluctuations. Interest rates for FDs vary across banks and you must do your research to learn about the best interest rates available in the country. Generally, a longer FD period such as for 5-10 years means a higher interest rate. You can start an FD for as less as Rs. 1000. Parents can opt for premature withdrawal for FD by paying a nominal fee. FD is a safe investment option for planning and securing your child’s future.
2. Children’s Mutual Fund SIP
Children’s Systematic Investment Plan (SIP) is a monthly mutual fund investment which aims to create a corpus to meet the future needs of a child. A SIP for a child can be started with a minimum investment of Rs. 500 every month for a reasonable duration between 10-15 years. Depending on the risk appetite of the investor, a SIP is allocated to either hybrid or equity funds. Equity funds have the potential of providing returns that exceed inflation. Once the child reaches maturity (18 years of age), SIP amount along with the profit can be entirely taken out for meeting the expenses related to marriage or partly to meet education fee requirements. A Children’s mutual fund SIP helps to secure the future of a child in a disciplined manner.
3. Equity Linked Savings Scheme (ELSS)
Equity Linked Savings Scheme (ELSS) is a tax-saving scheme which offers high-return with deduction up to Rs. 1,50,000 lakh as per the Income Tax Act’s Section 80C. This child investment scheme has a 3-year lock-in period. It has the potential to offer higher returns than other fixed income tax-saving schemes but also the risk involved is comparatively higher. It can help to build long-term wealth. However, it is necessary to consider the market circumstances and fluctuations.
4. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is a savings and investment scheme which offers fixed-rate returns and tax benefits. The minimum and maximum investments for PPF are Rs. 5,000 and Rs. 1,50,000 lakhs every year, respectively. The rate of interest offered by the Government for PPF is, at present, 7.1% p.a. PPF is a good investment plan which offers constant & steady dividends which can be used for your own or your child’s requirements.
5. Unit Linked Insurance Plans (ULIPs) for Children
United Linked Insurance Plans (ULIPs) for children are a great investment plan. Apart from insurance cover, ULIPs offer investing avenues to accumulate funds for the future requirements of the child. Child ULIPs generally come with 5-year lock-in periods. The premium paid for ULIPs for children is deductible up to Rs 1,50,000 as per Section 80C of the Income Tax Act. Under Section 10(10D) the act, the payout received is exempt at the policy tenure’s end.
Also read : Children’s Plans offered by HDFC
Conclusion
Child Investment Plans play a crucial role in ensuring your child’s financial requirements for different goals, such as education and marriage. Many insurers offer customized investment plans for children. You can do your market research and figure out which one would suit you best according to your budget, requirements and risk appetite.