Every parent aspires to offer a secure and quality life to his child. But when it comes to finances, many miss out on making the right investment choices at the right time. Here we listed the best investments that can secure the child’s future and help meet all the financial needs.
1. Systematic Investment Planning (SIP): The SIP is the best option for 2 main reasons i.e. the longer time-frame (10 to 15 years) and the simple mode of investment. A monthly investment of INR 5,000 in mutual funds for 18 years can fetch approximately 19.5 lakhs, assuming 12% annual returns. Due to the compounding power, returns clearly beat the inflation rate of 6% every year. So, the key lies in the time-frame of the investment rather than the invested amount.
SIPs or mutual fund investments into a well-diversified portfolio for long-term are best to meet the future big money needs like the kid’s higher education or marriage.
2. PPF: The Public Provident Fund (PPF) scheme has become the popular investment option for its impeccable EEE (exempt, exempt, exempt) feature. The first exempt is that the investment is allowed for tax-deduction. No tax is levied on the returns earned through accumulation. And the total amount withdrawn at the end would also be tax-free. Funds are deposited in PPF accounts for a fixed time period to earn interest on savings. As per the Union Budget 2016, the interest rate on PPF for the financial year 2016-2017 is 8.1%.
The PPF scheme’s long tenure is apt for the money needs life child’ marriage or higher education.
3. Sukanya Samriddhi Scheme: This initiative from Government of India is designed to encourage saving for the girl child. It can be opened any time between the birth and the age of 10 years. Minimum INR 1,000 and maximum INR 1.5 lakh annual investments can be made for 15 years. Maturity period for the account would be 21 years from the day of account opening. The attractive interest rate that is however subject to change, is the main feature. It is another EEE product eligible for tax exemptions under Section 80C.
The scheme is ideal for a girl child to meet higher education and marriage needs. Also, the scheme allows partial withdrawals after the child attains 18 years of age.
4. Debt Funds: Debt funds are a type of mutual funds generating returns from the investments into various deposits or bonds. These funds simply earn interest by lending the money deposited by the investors and this interest is the source of returns. The short-term debt funds can deliver up to 7% to 8% annual returns. They are more flexible and allow withdrawal or investments whenever required. If the income from mutual funds is invested for at least 3 years, it can be taxed at a lower rate.
Debt mutual funds are ideal for child’s recurring expenses like school fees, extra activities, clothing, transport and medical expenses, due to the liquidity and safety of the deposited amount.
5. Term Insurance Cover: Secure your child against any unforeseen event by taking a proper term insurance cover. Have a proper risk cover to reduce the financial impact on the lives of your dependents in your absence.
Avail a term insurance that covers all the major expenses of child-like marriage, education as well as livelihood he or she turns adults.
Approach experts to make a thorough financial planning and meet all your money goals of life. ArthaYantra, the online fiduciary, is established to make personal finance planning services available to every individual. Value your earnings and make right investments.