For parents who want to invest in their children's financial future, several investment options are available in India.
Let’s take a look at investment options for children.
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Public Provident Fund (PPF)
Public Provident Fund (PPF) is a popular long-term savings scheme in India backed by the government. It offers a fixed interest rate and provides tax benefits under section 80C of the Income Tax Act. The PPF account can be opened at any post office or authorised bank branch and has a minimum deposit of Rs. 500 per year, with a maximum limit of Rs. 1.5 lakh.
The scheme's tenure is fifteen years and can be extended by five years. It is a safe and reliable investment option for individuals seeking long-term financial planning and stability. Parents can open a PPF account for their children and regularly contribute to it.
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Sukanya Samriddhi Yojana (SSY)
Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme designed specifically for a girl child. It offers a good interest rate and provides tax benefits under Section 80C of the Income Tax Act.
The account can be opened by the parent or legal guardian of a girl child under the age of 10. The minimum deposit limit is set at Rs. 250 INR per year and the maximum at Rs. 1.5 lakh INR. The scheme has a term of 21 years, or until the girl child is wedded after the age of 18.
SSY can be a fitting investment option for parents looking to secure their daughter's future education, marriage or other life goals.
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Unit-Linked Insurance Plans (ULIPs)
Unit-Linked Insurance Plans (ULIPs) are investment products that combine the benefits of insurance and investment. These plans cover life insurance and invest a portion of the premium in various funds like equity, debt or a combination of both depending on the policyholder's risk appetite.
The returns are based on the market performance of the chosen funds. Investors even have the flexibility to choose between funds and can avail tax benefits under Section 80C of the Income Tax Act.
ULIPs are a good investment option for individuals looking for long-term investment opportunities along with the benefit of insurance protection. It can be a helpful investment option for children plus parents get to avail tax benefits on the premiums paid.
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Mutual Funds
Mutual funds are a type of investment wherein funds are pooled from multiple investors for the purchase of a diversified portfolio of securities. These funds are managed by professionals and offer long-term growth potential, diversification, ease of management and liquidity to investors. Their returns are based on the performance of the underlying securities.
The ease, low investment requirements, and the ability to generate good returns over the long term makes mutual funds a popular investment option for retail and institutional investors. However, parents can also invest in mutual funds for their child's education, marriage or future needs.
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National Savings Certificate (NSC)
National Savings Certificate (NSC) is a savings scheme by the Indian Post Office. Just like PPF, it also offers a fixed interest rate and tax benefits under Section 80C of the Income Tax Act.
The scheme has a maturity period of five or ten years. The minimum investment amount is Rs. 1,000.
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Fixed Deposits (FDs)
Fixed Deposits (FDs) are investment products offered by banks and other financial institutions. They allow investors to deposit a lump-sum amount for a fixed period at a fixed interest rate. The interest rates vary based on the deposit amount, tenure, and institution. They have a lock-in period. Withdrawing money before maturity may attract penalties.
FDs are a safe, low-risk investment option and offer higher returns than regular savings accounts. They make a good investment for risk-averse investors looking for a guaranteed return. Parents can invest in FDs for their children and also avail tax benefits under Section 80C.
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Equity Shares
Equity shares, also known as common stock, represent ownership in a company. When individuals buy equity shares of a company, they become a shareholder of that company. So, they have a claim on a portion of the company's assets and earnings. Equity shares are traded on stock exchanges and allow investors to buy and sell shares to realise capital gains or losses.
Shareholders also have voting rights. It allows them to participate in the company's decision-making processes, such as electing the board of directors or approving significant corporate actions.
Equity shares offer the potential for higher returns but are also associated with higher risks as the value of the shares can fluctuate based on market conditions. Parents can invest in equity shares for their child's future. But it is advisable to consult a professional financial advisor or broker before deciding on it as an investment option for a child.
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Gold
Gold can be purchased through jewellery, coins, bars or exchange-traded funds (ETFs). It appreciates over time and is considered a safe and reliable investment option for children. It also serves as a hedge against inflation, providing financial security for the future.
However, it is vital to understand the risks and costs associated with investing in gold before making a decision.
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Real Estate
Real estate is a popular long-term investment option for children as it has the potential for capital appreciation and can generate a steady stream of rental income. While it can provide financial security for the future, it also involves substantial upfront costs and ongoing maintenance expenses. Plus, real estate is a relatively illiquid asset as the property might not be easy to sell when needed.
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Education Savings Plan
Some financial institutions offer education savings plans specifically designed for parents who wish to invest in their child's education. These plans provide a guaranteed return on investment and tax benefits.
Conclusion
Several investment options for a child are available in India. Parents should choose the investment option that suits their financial goals, risk appetite, and time horizons, to reap the benefits of compounding.
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Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.