How Can I Secure My Children’s Future?

Several issues might plague your children's future. Most people may have second thoughts about when to start financial planning for their children. How much to invest and where to put your money are the two big questions in every parent’s mind. There are many investment options when it comes to securing your children's future. It is essential to know in detail about all money-saving possibilities before selecting an avenue for investment. The best course to go about would be to invest in a diverse portfolio across different investment options.

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How Can I Secure My Children’s Future?

Even if you start financial planning for your children early, there is no way to know exactly how much money they would need in the future. Also, there is a possibility of them being alone for the better part of their lives if they die prematurely. Nothing can be foreseen beforehand and thus you need to lock in a reasonable amount of investment for your children.

There are several different methods through which you can make sure that your children would be able to fend for themselves after your demise.

  • Child Savings Account

    A child savings account is a type of savings bank account meant for children below the age of 10 years and between the ages of 10 years and 18 years. It works similarly to a regular savings bank account. You would supervise your child's savings bank account. 

    Your consent is necessary for opening this account. It is directly linked with your savings bank account. If there is a shortfall in the minimum requirement in the child savings account, the balance would be deducted from your linked account. 

  • Child Insurance Plans

    A child insurance plan serves a dual purpose of life insurance and investment. You would get financial insurance cover along with a solid investment avenue for your child’s future. A child insurance policy enables you to secure your children’s future and builds an investment corpus also. This invested money would come in handy for meeting important milestones in your child’s life.

    In the case of a child insurance plan, you would be the owner of the policy and your child would be the nominee. A child insurance plan also provides flexible pay-out options to meet your child’s long-term and short-term future goals. 

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  • Savings Bonds

    A savings bond is a great way to start making small investments for your child. Savings bonds have an investment limit so that it is easier for you to keep aside a small amount of money in periodic installments. After an initial lock-in period of 5 years, your child would have an assured amount of money for them. 

    You would earn interest on a savings bond. Interest on a savings bond is payable every six months. You can choose the option to reinvest your interest and let it accumulate. By investing for your child's future in a savings bond, you would also have tax benefits as per the Income Tax Act, 1961. 

    Financial assistance from savings bonds can be useful for your child's future education or other expenses. You can use an education cost calculator to figure out approximately how much money your child’s education would require in the future. This way, you can calculate your initial investment’s returns in the future correctly.

  • Stocks and IPOs

    Stocks are a novel gift when it comes to teaching your child the value of saving money and investments. You just have to start the process for them and they can learn to manage investments themselves as adults. You can start by explaining to them the relationship between risk and return. 

    Once they are grown up, they would be able to understand profit and losses. This way they would learn to save money and to analyze market fluctuations in a better manner. All these lessons would prepare your child to become smart adults and intelligent investors.

  • Sukanya Samriddhi Yojana

    If you have a girl child below the age of 10 years, you can invest in the Sukanya Samriddhi Yojana. It is a scheme backed by the Government of India and can be opened in a bank or a post office. If you have two girls in your family, you can open a maximum of two accounts under the Sukanya Samriddhi Yojana.

    The Sukanya Samriddhi Yojana account would be under your daughter’s name. The scheme's main aim is to provide financial assistance and independence to your girl child in the future. You can use the money earned under the scheme for the education or marriage of your girl child. You can withdraw 50% of the funds after your daughter attains the age of 18 years. 

Child Savings Plan vs Sukanya Samriddhi Yojana Scheme and Public Provident Fund

  • Public Provident Fund (PPF) in Your Child’s Name

    You can open a Public Provident Fund (PPF) in your minor child's name as a parent. A PPF account would be of great help for your child in the future. If both you and your spouse are earning, both of you can contribute to the child's PPF account. 

    The maximum investment limit for your child’s PPF account is Rs.1.5 lacs per annum. The principal invested in your child’s PPF is eligible for tax deduction U/S 80C of the IT Act, 1961. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

    If you open the account at an early age, then by the time your child becomes an adult, the account will be close to maturity. With a lock-in period of 15 years, your child would be receiving the money to fulfill their future requirements such as higher education, marriage, health expenses, etc. 

  • Gold ETF

    Investing in gold is another way to secure your children’s future financially. The most cost-effective way to do so is to invest in gold through Gold Exchange Traded Funds (ETFs). Gold ETFs are commodity-based mutual funds that invest in assets like gold. 

    Financial advisors have advocated the purchase of gold ETFs instead of physical gold. Gold ETF investment is made on the stock exchange with gold as the underlying asset. You can buy gold ETF as low as 1gram and let it accumulate over time. 

    Your children would reap the benefits of your gold investments when they come of age. This way you would be able to build your portfolio as well as create a safe financial future for your children.

  • Mutual Fund Child Plans

    One of the primary financial goals for your child's future is accumulating enough money for their education. Investing in a mutual fund child plan would enable you to invest in both equity and debt portfolios. 

    If you are a young parent, it is advisable to invest in a mutual fund. These investments have a 5-year lock-in period and this period can be extended until your child becomes an adult. 

    A mutual fund child plan is meant to create a financial source for your child’s necessary expenses in the future such as education, marriage, relocation, etc. It acts as a long-term investment option with customizable terms and conditions for specific purposes. The money in the fund cannot be withdrawn until policy maturity. 

    The interest earned on mutual fund child plans is tax-exempt as per the provisions of the Income Tax Act, 1961. Also, the investment amount is eligible for tax deductions as per Section 80C. (*Tax benefit is subject to changes in tax laws. Standard T&C apply.)

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In Conclusion

You should keep in mind that a diverse investment portfolio is the most fruitful for your child's future requirements. Try and start planning your investments as early as possible to give your child a secure and independent future.

FAQ's

  • Should I go for a partial withdrawal option with my mutual fund child plan investment?

    Yes, it would be wise to go for the partial withdrawal option with your mutual fund child plan investment. This is because there is no way to know what emergencies lay ahead in the future. Being prepared with the necessary funds is always beneficial.
  • What are the minimum and maximum deposit limits for the Sukanya Samriddhi Yojana Account?

    The minimum deposit limit for the Sukanya Samriddhi Yojana account is Rs.250 and the maximum limit for it is Rs.1.5 lakhs. 
  • What are the documents required for opening a child savings bank account?

    Documents needed for opening a child savings bank account are as follows:
    • Duly filled child savings bank account opening form
    • Child’s birth certificate
    • A separate bank account form with details regarding the parent/guardian
    • Address proof 
    • PAN card details of the parent/guardian
    • Passport-sized photos of parent/guardian and the child
  • What is a Waiver of Premium (WOP) rider under child insurance plans?

    A Waiver of Premium rider in a child life insurance policy ensures that the policy does not end or become inactive after the policyholder's death. Even if the policyholder is unable to pay the premium, the policy will not lapse. In such an event, the insurance provider pays the sum assured and keeps paying the premium that is due. This rider is best suited for child insurance plans. 
  • Is it possible for me to name someone other than my child as a nominee for my child’s investment plan?

    If your child is very young and cannot handle their finances, you can appoint a close relative as your nominee. Your nominee would be responsible for taking care of your children if you and your spouse pass away prematurely.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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