Every parent wishes to gather a certain amount of corpus for safeguarding their child’s future. Be it education, marriage, or for various career needs, early financial planning can go a long way in ensuring that the required amount of money is available for your child at various stages in life.
Today, besides child insurance plans, there are various other instruments available for a child’s financial planning, like, public provident fund (PPF), mutual funds, shares, gold and even real estate investments. While child insurance plans are considered to be the safest, it makes sense for parents to explore other avenues of growing their money and making it available for their children.
Why Look for Alternatives?
The investment avenues mentioned above have the potential of delivering a higher maturity value as compared to some of the insurance plans. All the instruments may require a regular influx of money till the end of tenure. This could be a hesitance of parents to invest in alternative funds or investment options.
For those who are not keen on using an alternative, a combination of a term insurance plan and mutual funds can be a good idea. This way, the child will have funds even in the absence of the parent and with mutual funds, there will be sufficient growth of the available funds due to exposure to markets.
While planning for your child’s future, it is important to take the right investment decisions at the right time. There are various investment options in the market specifically for saving up for children. Depending on your specific needs, you can opt for the plan that suits you the most.
Additional Reading: Secure Your Childs Future With A Child Insurance Plan
Alternative Investment Options to Secure your Child’s Future
Let’s have a look at some of the best investment options that you, as a parent, can avail to secure your child’s financial future:
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Systematic Investment Planning (SIP)
If your goal is to fund your child’s education, consider investing through SIP in equity mutual funds. This needs to be looked at from a longer tenure perspective. A longer time period would generally range from 7 to 15 years or beyond. One of the biggest advantages of SIPs is the low minimum investment amount, which generally starts from as low as Rs. 500, which can be affordable to most.
You can make a monthly investment of Rs. 6,000 for 18 years (as calculated from the time of child birth till he/she attains age to pursue higher education) in equity mutual funds. This investment can easily fetch you nearly Rs. 45.9 lakhs if the rate of interest is 12%. This amount is easily worth Rs. 23.4 lakhs, if you consider an annual inflation rate of 6%.
SIP investment returns, especially those linked to equity mutual funds, are highly likely to pass beyond the inflation rate of 5-6% annually. Thus, for significant future goals such as a child’s marriage or higher education, long-term investments like SIP in equity mutual funds is one of the best alternatives.
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Debt Funds
Debt funds have comparatively lower risk as against equity mutual funds. These funds invest in various safe avenues like deposits or bonds, and earn stable interest through various investments. Debt mutual fund investments are ideal for a child’s future expenses like school fees, higher education, etc as it allows easy liquidity opportunities.
An ideal choice would be investments in the short-term debt instruments as these are more flexible in terms of withdrawal and investments as and when required. These are also known to deliver approximately 5 to 7 % annual returns.
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Sukanya Samriddhi Scheme/Yojana
The SSY scheme was introduced by the government to encourage savings for the girl child. You can open this account for your girl child at any time since her birth till she attains 10 years of age. The minimum and maximum annual investment amount is set at Rs. 1,000 and Rs 1.5 lakhs respectively for a tenure of 15 years.
SSY also provides the benefit of EEE (exempt, exempt, exempt) tax feature, under Section 80C. The ongoing interest rate offered under the scheme is 8.5%. This is subject to change as per changes in economy and inflation. The scheme has a maturity period of 21 years. Additionally, it allows partial withdrawals once the child attains 18 years of age. This scheme is an ideal option for a girl child to have sufficient finances for meeting her future goals.
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Public Provident Fund (PPF)
Investment in PPF is tax EEE (exempt, exempt, exempt). Tax-deduction is allowed for this investment and tax is not imposed on the earnings or returns accumulated. The total maturity amount withdrawn is also tax-free.
PPF investment has a tenure of 15 years. This makes it one of the safest options for long term investments for your child. It can accumulate a corpus which can be used for expenses like higher education or marriage. The funds deposited for a fixed time period earn an interest on the corpus. The ongoing interest rate offered on PPF is 7.9%.
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Term Insurance Cover
While this is not an investment option, it’s a must to secure and protect your child’s financial future during unexpected situations, like the death of a parent.
A pure term insurance plan protects the child in case the parents meet an untimely death due to any unforeseen event. This comes as a risk cover which reduces the financial burden on a family or the child, who would otherwise face financial crunch in case something happens to the primary bread-winner of the family.
If you choose a term insurance cover, it makes sense to have a cover which will include all major expenses such as education, day-to-day expenses, and marriage of the child.
Final Thoughts
Planning for your child’s future is not an easy task. While most individuals may think that they have appropriately planned, there could be challenging times when these funds may prove to be insufficient. Thus, while planning for the future of your child, it is important to make the right investment choices at the right time. There are various child plan investment options in the market but depending on your need you should opt for the ones that suit you the most.