Planning for a child’s future financial security is undeniably challenging. Despite attempts to create a strong financial cushion, many parents find their accumulated funds insufficient when it matters most. To ensure a solid financial backup, parents should consider not just a single investment plan, but multiple good child investment plans available today.
The key to safeguarding a child’s financial future lies in making appropriate investment choices at the right time. It’s crucial to assess each child’s unique requirements and the specific financial goals of parents.
Investing in children’s education and future is a parent’s primary priority, especially given rising school expenditures. You’re in the perfect place if you’re a parent looking for the best investment options for your child.
Here are some of the best investment plan for child future.
Top 9 Child Investment Plans to Invest in 2023
Investments have the potential to compound earnings, and besides basic plans, stock investing can also be considered for children.
The opportunities in this regard are limitless. If you’re wondering the best way to invest money for your child, let’s explore the 9 best investment plan for child future.
1. Fixed Deposits (FDs)
Fixed deposits are one of the best investment plan for child future. FDs are a viable investment option for child investment. They offer long-term investment opportunities with safety and high returns.
FDs involve low risk and provide an interest rate that remains unaffected by market fluctuations. Most banks offer fixed deposit schemes, and the best part is that having a savings bank account with the bank is not mandatory to open an FD.
Many banks also have special FD schemes designed specifically for children, some of which may include insurance coverage.
Additionally, there are recurring deposit (RD) options available where regular small investments yield a fixed interest rate, although the returns may be lower compared to an FD.
2. Equity Mutual Funds
Equity mutual funds can enhance the ROI of your child’s investment portfolio, but they also come with higher risk. Opting for equity funds is suitable for long-term goals.
A Systematic Investment Plan (SIP) can be a good option to mitigate risk and benefit from Rupee cost averaging.
When investing in equity funds, diversify across various mutual fund companies and different categories of equity funds.
For instance, allocate to large-caps for mid-to long-term goals and small and mid-cap funds for long-term goals.
After familiarizing yourself with Equity Mutual Funds, it is equally essential to understand the distinctions when Choosing Between Mutual Funds and Smallcase: A Guide to Smart Investments. The right choice can significantly enhance your investment growth.
3. Insurance Policies
Children-specific insurance policies are available in the market, offering you life cover and death benefits. These policies involve regular premium payments, and the invested amount grows through compounding over time.
At maturity, a lump sum is returned, which can be used for significant expenses like education and marriage. These policies also provide tax benefits, allowing deductions under different sections of the Income Tax Act of 1961.
Furthermore, the benefits received, including death benefits and maturity amounts, are tax-free within certain limits.
4. Sukanya Samriddhi Yojna (SSY)
This is a post office scheme and probably one of the best investment plans for the future of your girl child.
Sukanya Samriddhi Yojana is a government-initiated investment plan in India specifically designed for girl children. It can be opened at birth or before the child turns 10 years old and is available at post offices or authorised commercial banks.
The scheme has a tenure of 21 years or until the girl gets married. When the girl turns 18, she can operate the account herself.
The government declares the interest rate quarterly, with the current rate at 7.6% per annum. Upon maturity, the compounded amount can be utilised for the girl child’s education or marriage.
5. Gold Saving
Investing in gold is the best investment plan for child future and can be a smart choice also. But opting for gold ETFs rather than physical gold is advisable. Gold ETFs eliminate the need for storage charges and lockers, as you can invest in electronic form without worrying about theft.
You can gradually build a sizable investment by investing small amounts each month.
Historically, gold has provided better returns compared to many other asset classes over the long term, especially with a holding period of 10-15 years. Keep in mind that selling gold ETFs will incur capital gains taxes.
Alternatively, jeweller schemes can be beneficial if you have jewellery for your girl child.
6. Unit Linked Insurance Plans (ULIPs)
ULIPs are a beneficial investment option for children as they combine insurance and investment. Regular premiums are paid, with a portion of the premium invested in market-linked products. This provides a great opportunity to invest in children.
A ULIP-based child plan can assist in covering expenses for a child’s education or marriage. In the event of the policyholder’s unfortunate demise, the child receives either a lump sum or regular payments based on the policy terms.
Some plans even include premium waivers, ensuring that educational costs are still met.
The PPF is a highly recommended scheme for building a corpus for a child’s education due to several reasons. It is a 15-year scheme that offers attractive benefits. Bank interest rates are approximately 5%, although the current rate is 7.1%.
With RBI raising interest rates and bond yields rising, the government may modify PPF interest rates in the coming quarters.
One notable advantage is that the interest earned on PPF is tax-free in the hands of investors. Moreover, investors can avail of a tax rebate of up to Rs 1.5 lakhs under Section 80C of the Income Tax Act.
The flexibility of extending the PPF account in blocks of five years without any limit on the number of extensions is another distinguishing feature.
Furthermore, even after maturity, the PPF account can be retained with or without further contributions while still earning interest until the account is closed.
However, if an account holder wishes to continue contributing post-maturity, they must submit Form H within one year of maturity.
The PPF account also allows for partial withdrawals once per year during the extended block period of five years. However, the total withdrawals within this period should not exceed 60% of the account balance at the beginning of the extended block.
8. Bank Deposits
A child savings bank account is a long-standing investment option favoured by parents in India. Parents act as guardians/trustees until the child turns 18 years old.
Money can be deposited into this account, which generates regular and stable returns. The account may have withdrawal limits, distinguishing it from other types of accounts.
Overall, a child savings bank account is widely regarded as one of the top investment choices for children.
9. Multi-Investment Approach
A multi-investment approach in child investment plans offers a diversified, balanced portfolio, safeguarding against market risks while creating avenues for higher returns. One potential sector for inclusion is green energy.
With the Indian government’s push towards renewable energy, green investments, whether through direct equity or green bonds, offer long-term benefits and contribute to a sustainable future.
Alongside renewable energy, exploring sectors like technology, healthcare, and e-commerce could yield promising results.
However, traditional options like Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY) should still form part of your portfolio due to their reliable returns and tax benefits.
Diversifying your child’s investment portfolio can help ensure a secure and prosperous future, setting them up for success.
In the context of a multi-investment approach, one cannot ignore the broader question: What Is the Future of Renewable Energy? Exploring Trends, Growth, and India’s Impressive Strides. This perspective will offer valuable insight into promising investment sectors.
What are investment plans for a child’s future?
Investment plans for a child’s future are financial instruments designed to build a corpus to meet their educational and financial needs when they grow up.
Which investment plan is best for my child’s future?
The best investment plan depends on factors like your financial goals, risk tolerance, investment horizon, and your child’s specific needs. It’s advisable to consult a financial advisor to choose the most suitable option.
Are there any tax benefits associated with child investment plans?
Certain child investment plans offer tax benefits under relevant sections of the Income Tax Act, such as Sec 80C, which can help reduce your tax liability.
Can I switch between different child investment plans?
Switching between child investment plans may be challenging once you have invested in a particular scheme. It’s important to carefully evaluate and choose the right plan from the beginning to avoid unnecessary complications.
As we conclude this journey of exploring the best investment plans for your child’s future, two standout options have emerged: the Sukanya Samridhi and Public Provident Fund (PPF). They are considered the best future investments for your child. They offer attractive interest rates, and the interest earned is tax-free for investors. However, choosing the right plan depends on your savings capacity and the desired tenure.
For long-term tenures like 15 years, PPF is recommended, while shorter tenures can be fulfilled with deposits like the PNB Housing Finance Deposit, which offers a duration of up to 10 years.
Considering tax liability is crucial, as some child investment schemes have no tax liability and provide tax benefits under Sec 80C of the Income Tax Act.
In the concluding thoughts, it’s crucial to understand Renewable Energy Investment Returns: Financial Benefits. Being aware of such investment options can help diversify your portfolio and ensure a healthy return on investment.
Make an informed decision, as switching schemes later can be challenging. Explore sustainable investment options with SustVest for a better future.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.