When you start thinking about investing in your children, try to think about how much love and care was showered upon you when you were growing up. You will realize that regardless of how much you spend after your child, it never feels enough. However, the right thing to do is to concisely plan out their future through investments. Undoubtedly you want the best for your children, yet it is difficult to choose between the options available in the market. Let’s have a look at the different alternatives available for you, so you can pick the one according to your needs and priorities.
Equity (Multi-Cap) Funds
Thanks to newer regulations by SEBI, it has become much easier for everyone to choose from multiple types of mutual fund offerings. As SEBI has made valiant efforts in clarifying mutual fund options and defined the areas of investment for them, mutual funds have become an excellent option for long term investments. You can take the services of an advisor and diversify your mutual fund investment portfolio for the future.
It is well know and proven fact that equity is the best investment option to beat inflation. However, only in the long run. You cannot predict equity markets return on a future date. When you need money, if equity is not performing well, your investment will not generate the expected return. The parents having reasonably good disposable income today can divide their investment into Fixed Deposits and mutual funds.
You can allocate about a major portion in fixed deposits, so your major target remains unaffected in any market conditions. The remaining funds can be invested in options such as equities, mutual funds or other market-linked securities.
Fixed Deposits have always been the most trustworthy investments as deemed by Indians. Fixed Deposit for childs are a low risk high return investment which allows you to set aside your funds for a fixed tenure to earn interest. The benefit of Fixed Deposits is that you get a fixed return, which is highly reliable in nature. Lenders provide Fixed Deposits at an interest rate is higher, and you also get the option of converting it into a cumulative FD to get an even higher return. While FDs are also available for shorter term, you can re-invest the amount to multiply your returns, which is termed as laddering your FDs. NBFCs also provides the feature of an FD Calculator, which you can make use of to calculate your return according to the applicable FD Interest Rates. To know more about investing in Fixed Deposits.
It means, if parents want to start investment after the prescribed age, they must find another option. Second, you cannot invest more than 1.5 lacs per annum. The amount may not be sufficient at a future date if your goal is the foreign education of your girl child.
Sukanya Samriddhi Yojana
If you have been blessed with a girl child, you can avail this scheme which has been provided by the government. Sukanya Samriddhi Yojana (SSY) is not only a safe investment, but it is a great option for long term investment. An added benefit of availing SSY is that you are also eligible for tax benefits under Section 80C of up to 1.5 lakh INR. You can make a 15-year investment of INR 1.5 Lakh and you will receive INR 6841901 at maturity.
Equity Linked Saving Scheme (ELSS) is a type of mutual fund which provides you long term benefits with high returns. ELSS has the shortest lock-in period and you can also avail the benefit of tax deduction of up to 1.5 lakh under Section 80C of the Income Tax Act. As ELSS funds are invested into stock market for a long term, it has high potential to gain superior returns. You can invest in an ELSS every 3 years to gain tax breaks and also to create a large corpus over time.
Unit Linked Insurance Plans (ULIPs) are one of the best investments you can make for your child’s future. It combines the benefits of both insurance and also acts as an investment for the future. While it does not have a high return in short term, it provides you the benefit of financial protection and diversified investment options within ULIPs. Furthermore, you can also claim tax benefits of up to INR 1.5 lakh on the insurance premium amount.