Best Investment Options for Minors

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The birth of a new born brings with it bundle of joys and a hell lot of responsibilities. The most important of this responsibility is getting financially equipped to fulfill his/her future needs. And for the right reasons, the education costs are upsoaring higher as ever, and so is inflation. There are a lot of investment avenues that help the parents to build a corpus over time for the child till he/she arrives at a point where he/she needs money to give wings to his/her dreams. 

To start early is the key to save a decent corpus sum over time, be it any form of investment. Moreover, the effect of compounding rate will be more when an early start is taken. Slackening the decision to invest till late can cost you dearly.

Here’s an analysis of the 5 best investment options for funding a child’s long term financial needs.

Child Plans

A blend of insurance and investment, a child plan is perhaps the wisest investment option out there. Like a double edged sword, it serves two purposes –

  • Secure a child’s future in case of an unfortunate eventuality
  • Build a corpus over the policy term and pay it back to the child at the important turns in his/her life

The best thing about a Child Plan is the gamut of flexibilities it offers to the investor. That would include the flexibility to choose the policy term, premium amount and mode of premium payment as well as the options to avail the benefits of partial withdrawals and other valuable riders and benefits.

Child Plans are of two types – Child ULIPs and Child Traditional Plans

Child ULIPs

Child Traditional Plans 

High risk

High return

Premium money invested both in debt and equity instruments

Ideal for a longer term (>10 yrs)

Low risk

Low return

Premium money invested primarily in debt instruments

Ideal for a shorter term (<10 yrs) 

 

Money Back Plans

Money Back plan is a variant of the traditional life insurance wherein the insurance company gives the insurer a life cover along with periodic returns on a regular basis. In a conventional plan, the investor had to wait for the whole policy term to end to get the return. In contrast, money back plan meets the child’s financial needs time to time throughout the policy term.

The regular payouts are made at fixed intervals of time and set the investor free of his/her immediate financial burdens. When the policy term ends, the rest of sum assured is paid out to the investor to be deployed in the child’s education or marriage.

Long Term Fixed Deposits

Long Term Fixed Deposit is the form of investment where an investor deposits the money in a bank for a fixed time period (up to 10 years). The interest rate offered on the fixed deposit is quite perky and can be up to 10%.

There are two main reasons why Fixed Deposit made it to our list of best investment options for minors.

  • FDs are tax efficient
  • FDs lock in the money and let it hatch and grow through the whole investment term

We recommend investing in fixed deposits especially to those impatient investors who are always tempted to disrupt the funds before they actually begin to grow. Long term fixed deposit makes sure that your funds remain untouched until they attain a substantial growth.

Gold ETFs

And then there’s Gold, the safe haven of investment. True, gold has proved, time and again, to be the most resistant to the volatility of the market while still offering high potentials for growth. But buying and keeping gold is quite a task as it makes you vulnerable to burglary and misintents. An alternative, might we add a better one, is to buy Gold Exchange Traded Funds (ETFs). When you buy a gold stock, it’s like buying the actual gold without having to carry it around physically. ETFs enable the investor to roast the ever rising value of gold.

There’s yet another reason as to why Gold ETFs made it to our list. In India, gold is still seen as the most valuable asset to set a status symbol, especially on occasions as marriage. Making an investment in ETFs makes it easy for you to buy gold for your child’s marriage.  

A Balanced Investment in Share and Bonds

Making a direct investment in equity and debt instruments is the best bet for those investors who have a taste for capital markets. The craft of getting your hands at right stocks at the right time comes with patience and knowledge. An ideal way is to hold firm to a planned strategy rather than getting carried away in the momentary highs and lows of the market.

A smart strategy for making big in the money market is to invest aggressively in equity instruments at initial stages, letting the money take turns and tumbles till it grows substantially and as your child grows, transfer the money made so far from the equity instruments to the safe and steady debt instruments.

Child is born                                         Start investing. Invest in equity instruments

Child is 15 years old                              Transfer the funds from equity to debt instruments

Child is 21 years old                              Withdraw the money and use it to fulfill your child’s aspirations

 
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