There are various options available to secure your child’s future. It is better to diversify across a few investment options rather than deciding what option is the best for the child.
Sukanya Samriddhi Yojana (SSY )
Investment in Sukanya Samriddhi Yojana (SSY) can be done only if you have a girl child below 10 years of age and a maximum of 2 accounts are allowed to be opened per family under this government scheme. Sukanya Samriddhi Yojana account can be opened in a bank or a post office.
An SSY account requires a minimum initial deposit of Rs 250 and a maximum of Rs 1.5 lakh annually. On opening an SSY account, one has to keep depositing for initial 15 years, although the scheme is for 21 years.
At age 18, the parent can withdraw the amount for the marriage purpose of the child and up to 50% of the balance can be withdrawn for the girl’s higher education in the preceding year. The SSY account can be permanently close any time before 21 years by an application made by the parent along with the declaration that the girl is not below 18 at the time of her marriage.
Public Provident Fund (PPF)
PPF account can be opened in the name of the child as well. A maximum contribution of Rs 1.5 lakh can be done in the child’s name in the account and the principal invested in PPF qualifies for deduction under Section 80C of the Income Tax Act, 1961. However, a maximum of Rs 1.5 lakh can be put into them (parent plus minor account) in a financial year. The investment made in self and kid’s accounts will both count towards tax benefits.
Child plan with a waiver of premium (WOP)
The waiver of premium (WOP) feature in a life insurance policy ensures that the policy does not become inactive even after the death of the policyholder or due to the inability of the holder to pay the premium. The insurer pays the sum assured and keeps adding premium into the plan on the due date. which ensures the fund value is available for the child at the desired age.
Mutual funds for children’s future
Young parents can invest in children’s goals that are 7 years away by investing in equity mutual funds and build a core portfolio with consistently performing funds like large and mid-cap or index funds accordingly.
Buying Gold ETF
Gold exchange-traded funds (ETFs) are a more cost-effective way to invest in gold. They represent paper gold and are similar to buying MF units. They trade on the stock exchanges( NSE and BSE) with gold as their underlying asset.
Alternatively, sovereign gold bonds (SGB) issued by the government regularly can also be bought. SGB comes with a maturity period of eight years (lock-in ends from the 5th year).
The author suggests opening a PPF and SSY account on a priority basis. Taxation and liquidity factors must be kept in mind while looking at ETFs and SGB. But most importantly, funds saved for children’s benefit should not be used for any other goals or contingency.