Given the rate at which inflation is noting an upward trend, your child’s future, and financial security need to have a dedicated investment made in their name. There are numerous savings options available out there, but you must look for the best child investment plan as per your financial goals and futuristic plans for your child. Child investment plans come with added benefits and have additional support from the government and insurers.
Key Takeaways
- Child investment plans are a great way to save money for a child’s future and create a financial cushion for emergencies.
- There are different types of child investment plans to choose from, including ULIP, SIP, SSY, debt funds, PPF, gold investment, and equity mutual funds.
- A child saving plan comes with a number of benefits, such as helping fund your child’s education, providing for their medical needs, and offering tax benefits.
This article will discuss the best investment plan for children that you can consider investing in. Let us take a brief look at the best investment plan for the girl child in India.
How Does Children’s Investment Plan Work?
A child investment plan in India is a long-term savings plan designed to help parents and guardians save for a child’s future.
In case of the insured’s death, the company will provide the child with annual payments of a portion of the policy’s maturity amount until maturity, and any remaining payments not already made are waived. Upon maturity, the entire cover amount will be given to the child. If the insured survives the entire policy period, the full cover amount will be paid out to the child. Additionally, the insured (parents) are able to access the funds accumulated in the policy for any mid-term needs.
If you wonder how to make this investment plan work, below-listed are some of the steps for you to explore:
Account Setup
Parents or legal guardians can set up a children’s investment plan by opening an account with a financial institution, such as a bank, brokerage firm, or investment company. The account is established in the child’s name but managed by the adult until the child becomes eligible to take control of the account.
Regular Contributions
The account holder can make regular contributions to the plan, which can be weekly, monthly, or annually. These contributions can be in the form of cash deposits, direct debits, or electronic transfers. The frequency and amount of contributions depend on the account holder’s financial capacity and goals.
Investment Options
Children’s investment plans offer a range of investment options, such as mutual funds, stocks, bonds, or index funds. The account holder can choose investments based on their risk tolerance and long-term financial goals. It is essential to consider the investment horizon and the child’s age when selecting the appropriate investment strategy.
Potential Returns
Over time, the investments in the children’s investment plan can generate returns in the form of capital appreciation, dividends, or interest. The compounding effect allows the investment to grow substantially over the long term, providing a solid financial foundation for the child.
Tax Considerations
Children’s investment plans may have tax advantages, such as tax-free growth or reduced tax liability. The specific tax treatment depends on the jurisdiction and the type of account chosen. It is advisable to consult a tax professional or financial advisor to understand the tax implications and benefits.
What to Look for in Investment Plan for Children?
Investing in a safe and secure future for your children is one of the most important investments you will ever make. Whether you are saving for college or the retirement of your child, investing for their future should be part of your overall financial plan.
But with so many investment options available, it can be overwhelming to decide which one is right for your family. So, keep scrolling through to know the considerations while selecting the best investment plan for child.
Identify Your Goals
Before making an investment, you must identify your investment goals and perform a cost-benefit analysis.
Research Different Options
Before making an investment decision, you must understand the different types of investment plans available in the market and make a diverse investment portfolio.
Choose the Plan with High Returns
Invest in a plan that offers enough corpus to meet expenses like education, health emergencies, and miscellaneous costs.
Seek Expert Advice
Consult with an expert to identify the maximum contribution you can make to an approved plan without facing tax charges; investigate what local or state benefits could bring you further gain.
Best Investment Plan for Your Child’s Future
The financial market, specifically in the case of insurance and investment policies, is highly saturated, and you will get a long list of options to pick from. This vivid availability makes it very difficult for the parent to choose the correct and best child investment plan. To ease this daunting task, here is a list of child investment plans in India that might cater the best to your child’s needs:
ULIP for Children (Unit Linked Insurance Plan)
Unit Linked Insurance Plan is the best investment plan for a child, as this plan yields higher returns. ULIPs are financial plans that offer both the security of insurance and the opportunity for investment in the markets. In addition to this, they offer triple benefits as a child investment plan.
In case of the parent’s demise before policy maturity, the insurance company will pay further premiums for the policy. The child will receive a monthly income/allowance to meet the daily or educational expenses.
SIP (Systematic Investment Plan)
SIPs are mutual fund schemes that serve as the best investment plan for a child’s future. In SIPs, the bank invests the amounts in market funds like debts, equities, or hybrid funds, which allows them to grow the income to a large extent. SIPs are a great choice for parents as the best investment plan for children as they ensure a better return on investment. However, SIPs are market-linked financial products that are influenced by market fluctuations and performance.
Sukanya Samriddhi Yojana (SSY)
SSY, or Sukanya Samriddhi Yojana, is a savings scheme available for girl children in India. Being a government scheme, it is highly reliable and preferred by many as the best investment plan for the girl child in India. As a parent, you can open this scheme in the name of your daughter in the bank and yield a good interest rate of approximately 7% to 8%, subject to changes. The account will mature once the girl turns 21 years old. The minimum investment amount for this scheme is ₹1000/- and the maximum is ₹1.5 lacs.
Debt Fund - Market Fund (One-Time Investment Option)
Parents prefer this option as the best investment plan for their child’s future because some of the debt mutual funds offer better returns than simple bank deposits. Additionally, they are more tax-efficient, making them a much better choice. You can opt for debt funds if you are looking for a long-term investment goal to support your child’s future.
PPF - Public Provident Fund (Long-Term Traditional Plans)
In the list of best child investment plans in India, PPF is a key player in a long-term investment that is highly secure. In PPF, funds are locked in for 15 years, and you can invest a minimum of ₹500 to ₹1.5 lakhs per annum. PPF, on average, generates returns at a rate of interest ranging from 8% or above. You can open PPF accounts at banks and post offices.
Invest in Gold
When the markets are erratic and against equity, gold always serves as the ideal hedge. Gold is a reliable kind of investment, especially over a long period of time, and it fights the forces of inflation. Additionally, it has a high degree of liquidity and can be usefully cashed in for a child’s future financial needs.
To lessen the risk involved with gold storage in physical form, experts advise against investing in it.
Equity Mutual Funds
Deposits made to equity mutual funds rank high in the Children’s Investment Plan. The two main justifications for the same are the availability of investment options and the longer time horizon of 10-15 years. Equity funds have historically produced annual returns of between 12% and 15%.
Invest in Recurring Deposits
Recurring Deposits are a good option for parents seeking a low-risk investment strategy for the future of their children because interest rates at all times remain high. You can create future plans for your child by locking the RD. Both banks and post offices provide recurring deposits in India.
For instance, after ten years, a monthly investment of ₹1000 can yield ₹2 Lakhs. On the official website of the Indian Post Office, there is a tool you can use to check the potential returns on your monthly investment. As a child saving plan, this is a good way to collect a corpus without the risk involved
Benefits of Investment Plan for Child
Child investment plans in India offer two main benefits: saving money for a child’s future and creating a financial cushion to help them meet unexpected expenses. Apart from these, there are a plethora of other benefits as well that this investment policy offers. Let’s dive deeper to know the details:
Child’s Education
The rising inflation is leading to increased education expenses. With this, arranging funds to meet the expenses of higher education can be quite difficult. A child plan, if taken during an early phase, can help you easily accumulate enough finance to offer the best education to your child.
Medical Treatment
Child plans taken at the right time can be a saving grace in the case of illnesses or medical emergencies that requires expensive treatments. Not only do child plans allow for savings to be accumulated, but they also provide additional returns. These returns can be used to support the child in terms of providing for their healthcare needs, alleviating any financial burden.
Tax Benefits
Many investment plans for children offer tax benefits, such as deducting contributions from taxable income. This can help to reduce your family’s overall tax burden.
Financial Support in the Absence of Parents
In the event of a parent’s death, surviving children will receive the maturity amount upon completion of the policy term. Additionally, they will receive annual payments throughout the duration of the policy from the year of passing and no longer need to pay premiums.
Right Time to Make Investment for Your Children
Every parent wants to provide the best they can for their children, and it is essential to plan for their future financial needs as early as possible. The simplest and most effective way to do this is to start saving now. Even small amounts saved up regularly can provide a large amount of money for your children and dependent family members over time, thanks to the power of compounding.
Early saving also gives you more time to invest in those options that yield high returns in the long run. It is never too late to start saving for your children’s future, and beginning as early as their formative years will help you amass enough money to fund their needs as they grow older. So, be sure to lay out your savings plan today and reap the manifold benefits of starting to save early.
Conclusion
The best investment plan for children is one that not only yields a good return but also provides security for their future. Utilizing the services of a financial planner to create a solid, comprehensive investment plan may provide the greatest security and return for the future of one’s children. It is important to recognize that no single investment plan guarantees success, but by investing wisely and with proper advice, parents can secure their child’s future and give them the opportunity to reach their goals.
