Children’s Day and investment tools: Parents often focus on ensuring a secure future for their children. It is crucial to make wise investments in order to achieve financial stability as they age. While navigating the world of finance may appear intimidating, following a systematic and disciplined approach can lead to significant wealth accumulation for individuals.
Sukanya Samriddhi Yojana
If you have a girl child, the Sukanya Samriddhi Yojana (SSY) is a secure investment option that provides assured returns. It also comes with the benefit of the EEE tax regime (exempt-exempt-exempt), ensuring that the maturity proceeds are completely tax-free. Sukanya Samriddhi Yojana (SSY) accounts are offering an impressive 8.2% per annum compounded interest rate for the quarter spanning from July 1, 2024, to September 30, 2024. The interest rate on SSY accounts is reviewed and updated every quarter, making it one of the most competitive rates available among small savings schemes.
For those with a 5-year-old daughter, investing Rs 1.2 lakh annually (equivalent to Rs 10,000 per month) at an interest rate of 8.2% per year may lead to an estimated maturity amount of approximately Rs 55.61 lakhs in Sukanya Samridhi Yojana after 21 years. The total invested amount would be Rs 17.93 lakhs, with interest earned over the 21-year period amounting to Rs 37.68 lakhs.
If the investment amount is increased to Rs 150,000, the maturity amount is expected to reach Rs 69.8 lakh, with interest earned totaling Rs 47.3 lakhs and the initial investment reaching Rs 22.5 lakhs.
NPS Vatsalya Fund
For parents looking to secure their child’s financial future beyond education, the National Pension System (NPS)-Vatsalya can be a suitable solution. This scheme allows parents to invest in their children’s name until they reach 18 years of age, with the goal of building a corpus for their long-term needs. Like the standard NPS accounts, the PFRDA oversees this scheme as well.
Just like with regular NPS accounts, parents have the flexibility to choose from a variety of pension fund managers and opt for either active or auto investment options. The maximum allocation to equities, a potentially high-return but risky asset class, is limited to 75%.
Parents have the option to start investing in the NPS Vatsalya scheme with a minimum monthly contribution of Rs 1,000, with no maximum limit. The account will be under their management until the child turns 18, after which ownership of the account will be transferred to the child. The interest rate for the scheme has recently ranged between 9.5% to 10%.
Specific Mutual Funds
Children’s Mutual Funds are specialised investment schemes designed to help parents save for their children’s future needs, such as education, marriage, and general welfare. These funds prioritize ensuring that children’s education expenses are covered, even as costs rise over time. Some plans also offer lump sum payouts when the child reaches a certain age, which can assist parents in meeting tuition and related expenses.
Tata Young Citizen Fund, HDFC Children’s Gift Fund, UTI Children’s Equity Fund (G), ICICI Pru Child Care Fund-Gift Plan and LIC MF Children’s Gift Fund (G) are some of the mutual funds focussed on children’s savings.
Public Provident Fund (PPF)
The PPF scheme, a government-backed long-term investment option, aims to promote savings and wealth growth for individuals. It provides investors with an attractive interest rate and promising returns on their investments over time.
One of the main advantages of the PPF scheme is that the interest earned and returns accumulated are not subject to taxation under the country’s Income Tax laws. This makes it a tax-efficient investment choice for individuals looking to secure their financial future.
With a minimum tenure of 15 years, the PPF scheme can be extended in blocks of 5 years as desired by the investor. The investment limits for PPF allow a minimum investment of Rs 500 and a maximum investment of Rs 1.5 lakh per financial year. Investors have the flexibility to make investments in a lump sum or in a maximum of 12 installments throughout the year.
Bank fixed deposits
Parents have the option to open a Fixed Deposit (FD) for their children by naming themselves or their partner as guardians. Some banks offer specialized FD schemes tailored towards children, which may provide higher returns on investment. Examples of child-specific FD schemes introduced by Indian banks include PNB Balika Shiksha Scheme, PNB Uttam Non-Callable Term Deposit Scheme, Yes Bank Fixed Deposit for Child, and SBI FD for Child.
Bajaj Finance fixed deposits provide a range of tenure options, from 12 to 60 months, offering flexibility for investors to align their investment period with their financial goals for their child. This allows investors to match the FD tenure with specific milestones, such as college admission, to effectively plan for the future. Senior citizens also benefit from a higher interest rate of up to 8.65% p.a., making it an ideal choice for grandparents looking to contribute towards their grandchild’s future.
Child savings plans
Child savings plans are designed to facilitate long-term wealth accumulation. These plans provide the advantage of both investment growth (equity, debt, or hybrid funds) and life insurance coverage, enabling parents to create a substantial fund for their child’s future. The Max Life Online Savings Plan — Variant 2 emphasizes high-growth potential by concentrating on equity funds to help establish a financial base for your child’s education or other future necessities. The Bajaj Allianz Life Smart Wealth Goal V — Child Wealth focuses on mid-cap equity funds, which have the potential to generate higher returns over an extended period.