Investment Accounts For Kids

Raising a kid today is no easy feat. With costs of education and living expenses on the rise every day, parents are always looking for savings options. Investments in market-linked instruments are one of the best ways for a parent to grow a substantial corpus for their kids. Risk-free savings avenues such as fixed deposits, PPFs, etc., are also sought after by new parents who are averse to fluctuations in the market performance.

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Different Types Of Investment Accounts For Kids

The Indian market currently features a plethora of investment options for parents to save for their kids. These range across various investment needs such as insurance, education, savings, and the risk profile of the investing parent. However, most of these investment accounts for kids require a parent or a guardian to manage the funds and make informed decisions in the child’s name. Let’s look at some of the popular choices among investors that can get you the returns you desire for your child. 

  1. Demat Account For Minors In India

    Minors can now have their own investment accounts. Parents can open an investment account for their kids by way of a Demat or trading account in India. SEBI (Securities and Exchange Board of India) has established certain norms that a parent must follow to do so. Some of these are:

    • Birth certificate of the child as his/her age proof, along with KYC and a document to prove the relationship between the child and the parent/guardian, has to be furnished. 

    • The Demat/trading account for the child will be operated by the parent till the child reaches the age of 18. 

    • Parents can open a trading account in the name of their kids only for the sale of securities. These securities should have come under the child’s possession as a part of gift/donation, inheritance, market transfers between family members, etc. 

    • A child with a trading account cannot make a sale or purchase of securities themselves until they have attained the age of a major. 

  2. Children’s Gift Mutual Funds

    These are a special kind of investment scheme wherein parents can position funds for their children towards specific goals such as education or marriage. Such an investment account for kids comes with a lock-in period as an approximate timeline towards reaching the particular goal. These funds are mostly hybrid, meaning that funds are invested in both debt and equity holdings. The distribution of the funds further depends on the risk-taking appetite of the parent. You can choose to invest in other higher-risk equity funds to get good returns. However, make sure that the investment horizon is long enough for the power of compounding to take effect. 

    People also read: Child Education Plan

  3. Savings Account For Kids In India

    These are the safest investment accounts for kids that allow parents to save for their child’s future. Savings accounts come with assured returns along with the maturity amount by way of interests earned on the amount invested. Most of these are favored by parents given the backing of the Government of India. Popular savings-based investment accounts for kids in India are:

    1. Public Provident Fund (PPF)

      A PPF account matures in 15 years, thereby enabling a parent to remain invested long enough. Along with a high interest rate, it comes with tax benefits on the interest earned, amount deposited, and the maturity proceeds. The current interest rate of PPF accounts is 7.1%, compounded annually. This option is ideal for parents on a budget as one can invest as low as Rs. 500 per annum. 

    2. Sukanya Samriddhi Yojana

      This one is another government-backed investment account for kids, specifically designed for a girl child. This savings account earns interest at the rate of 7.6% annually, the highest among other financial instruments. Parents can invest a sum of just Rs. 250 in a year to keep the account active and earn interest on the same. 

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  4. Sovereign Gold Bonds

    Gold is considered a good investment opportunity given that its value generally does not depreciate. A parent or a guardian can submit an application to buy Sovereign Gold Bonds in the name of their kids. One can also invest in gold through gold exchange-traded funds. The buying and selling of these happen on a stock exchange platform like mutual funds. Parents can accumulate gold ETFs in the longer term and use the proceeds from their sale in the stock exchange to fund their child’s education. 

  5. ULIPs

    ULIP stands for Unit-Linked Insurance Plan. Parents can invest in child ULIPs to get the benefit of insurance protection as well as returns from market-linked investments. Parents pay a premium against their desired coverage, and a percentage of this amount is invested in the market. On the death of the parent, the child receives the assured death benefit, and future premiums are waived off by the insurer. The investment component continues till the maturity of the policy to ensure that the child receives decent returns on the invested amount.

Summing Up!

As your child grows older, it is prudent to let them in on your financial decision-making to ensure that they make wise investments themselves in the future. Opening an investment account for kids requires thorough research. The above-mentioned avenues are fairly wide-ranging, with suitable options for parents with both low-risk and high-risk appetites.

*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.
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^^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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