Planning for your child’s future – their education, marriage and lifestyle – is no mean task. Given the galore of investment options available today and the unpredictable nature of inflation, you cannot put your finger on one approach that will help secure your kid’s wellbeing. Instead, you need to identify the appropriate investment options, at a convenient time, rather than going for simple ad hoc savings and investments.
Moreover, you would need to match your investments with the right asset allocation balance, to meet your financial goals set for your child’s better future. Here’s are five ways you can plan for the wellbeing of your child and their future needs.
1. Put Aside Your Savings in Fixed and Recurring Deposit Bank Accounts
Both Fixed Deposit (FD) and Recurring Deposit (RD) are among popular investment options for investors in India, because of their risk-free disposition. Both FD and RD offer fixed returns over some time, without exposing your investments to market risks.
Most reputable banks and financial institutions offer fixed deposits and recurring deposits, which in turn, allow you to invest a specific amount of money and receive a fixed interest on the same. Once the investment tenure ends, you will receive both the interest and the invested amount as the maturity benefit.
2. Consider Investment into Mutual Funds
Mutual Funds are listed with SEBI (Securities and Exchange Board of India), which regulates the security markets and the performance of these funds. In theory, mutual funds refer to a pool of money, which is accumulated by several investors. The primary objective of these investors is to make money through their investment.
Thus, the accumulated corpus is invested in a variety of asset classes such as debt funds and liquid assets. Moreover, both rewards and losses earned over the investment period, are shared by all the investors, in proportion to their contribution to the corpus. Apart from their ability to avail significantly high returns on investments, mutual funds are easy to invest into and also allow investors to sell out their shares whenever they need or want.
3. Open a Public Provident Fund Account
Even after all these years, the popularity of Public Provident Fund (PPF) among investors continues to increase. The most impressive aspect of PPF is that the invested principal amount and the interest earned, both have a sovereign guarantee, while the returns are entirely tax-free.
While the principal amount is eligible for tax deduction under Section 80C of the Income Tax Act, 1961, the interest earned qualifies for tax exemption under Section 10 (10D).
Essentially, PPF is a 15-year investment scheme, which can be opened in a designated bank branch or a post office. However, you can extend the period indefinitely, in multiples of 5 years. You can apply for a PPF account online as well.
4. Invest in Sukanya Samriddhi Account Scheme
Introduced by the Government of India, the Sukanya Samriddhi Scheme is targeted at empowering the girl child and take care of her financial needs such as those of education and marriage. Couples who have a girl child ageing 10 years or less are eligible to apply for an account under this scheme.
Sukanya Samriddhi Scheme offers the highest tax-free return with a sovereign guarantee. Also, the scheme comes with the Exempt-Exempt-Exempt (EEE) status. Therefore, the amount you invest annually under this scheme, the interest earned and the maturity benefits, all carry tax saving benefits.
5. Opt for a Child Insurance Plan
These days, reputable insurers including Max Life Insurance offer a combination of life insurance and investment, in the form of child insurance plans. These plans help secure your child’s future even in your absence.
Primarily, a child insurance plan offers a lump sum payment on the completion of the policy term. Moreover, these plans also allow you to avail flexible payouts at crucial milestones of your child’s education. Overall, child insurance plans are designed to help you maximise your savings so that you can tackle the growing lifestyle costs and higher education expenses of your child.
Where There is a Will, There is a Plan
The first step towards securing your child’s future is to frame clear goals and finance requirements. Therefore, you need to note down each important milestone that you need to support with an approximate amount of money after factoring in the rate of inflation. Subsequently, you need to identify the appropriate time horizon for each goal.
Once you’ve accomplished all this, you would have to start with the creation of a financial portfolio, which has a balanced allocation of the asset. You may look to allocate your savings into a high-yielding mix of equity, real estate, debt or gold, to make sure that the capital is both secure and has ample chance of growth. Finally, you must pick the investment instruments that fit into your desired asset allocation. You can either go for a bunch of separate equity and debt instruments or invest in an education plan for child, which offers the combined benefit of investment and insurance to suit your risk profile.