Top 6 Child Investment Plans in India for higher returns
Every parent would think about their child’s future education expenses or accumulating money for their daughter’s marriage. Parents should take one step ahead and think of gifting a secure future for their child. Gone are the days where one used to think about money back plans or ULIPs for the child’s future. If they can plan well and invest in some of the best child investment plans in India, these can create good wealth which can be used for their kids future. What are the benefits of investing in Child Investment Plans? Which are the top child investment plans in India that offer highest returns? Are there any good plans to invest for child to meet short term financial goals?
What are the Benefits of Child Investment Plans?
Here are some key benefits of investing in child investment plans.
1) You can plan well in advance about your child’s education including any foreign education which you may dream for.
2) You can plan ahead and accumulate wealth for your daughter’s marriage
3) You can invest in a good investment plan based on your risk appetite so that you don’t compromise on risks.
4) You can invest in an investment option that meets your financial goal after specific time as per plan i.e. either kids education or daughter’s marriage.
Top 6 Child Investment Plans in India for higher returns
Now let us jump into some of these child investment options.
#1 – Take a Term Insurance for YOURSELF to secure your child’s future
This is not a real child investment plan. However, if you are not there in this world, your child’s future is blank. Hence first you need to take a good term insurance plan which can protect your family including your child’s future. Even in your absence, your child can have a quality education and your daughter’s marriage can be done without any issue.
Caution: Don’t take insurance plans in the name of your child. Insurance agents would miss-sell them when you approach them “Child insurance plans”. These plans are meant for paying money to you if your children are not there in this world. Do you prefer to take such plans? Just avoid them.
There are Children Insurance Plans which are for low risk investors and that protecting the child’s future in the absence of parents. One can really need to think twice before taking such plans.
#2 – Invest in Balanced Mutual Funds / Hybrid Mutual Funds
Many of us are well aware of balanced mutual funds. Do you know that you can plan well and invest in balanced mutual funds for your child education?
Balanced mutual funds invest up to 65% in equity and balance in debt instruments. Since it invests in debt instruments too, these are less riskier compared to other equity mutual funds.
You can invest lumpsum or Systematic Investment Plan (SIP) in these balanced mutual funds. If you invest every month through SIP, these can beat stock market volatility and you can get stable returns.
These are good for moderate to high risk investors.
This child investment option has high liquidity. Means you can sell the mutual fund units any time and you can get money within 3 working days from the date of selling them.
Balanced mutual funds come with lower tax on the MF returns, i.e. LTCG is taxed at 10% over and above Rs 1 Lakh exemption.
These mutual funds can provide 12% to 15% annualized returns.
Balanced Mutual Funds are one of the best Child Investment Plans in India for moderate to high risk investors who are willing to invest at least for 5 years time frame.
#3 – Invest in Large Cap Mutual Funds
Another option which I would suggest for your child’s future is large cap mutual funds.
As the name indicates, Largecap mutual funds invest in large cap stocks in India. Post SEBI reclassification in May-2018, many fund managers shifted their focus from smallcap/midcap to Large cap stocks, hence these have gained prominence.
You can invest in lumpsum or through Systematic Investment Plan (SIP) in large cap mutual funds. However, if you are investing through lump sum, first invest in liquid funds or debt funds and do systematic transfer plan (STP) to a large cap fund for 6-9 months. This way you are not investing when the market is too high. You can invest every month through SIP, which can beat stock market volatility and provide stable returns.
These are good for high risk investors.
This investment option has high liquidity. Means you can sell the mutual fund units any time and you can get money within 3 working days from the date of selling them.
Like Balanced funds, even Large cap funds have lower tax on the MF returns, i.e. LTCG is taxed at 10% over and above Rs 1 Lakh exemption.
If you can invest in some of the best largecap mutual funds, these can provide 13% to 18% annualized returns.
Large Cap Mutual Funds are one of the best Child Investment Plans in India for high risk investors who are expecting high returns and who are willing to invest at least 5-7 years time frame.
#4 – Invest in Public Provident Fund
Now, let us move to safe investment option for your child which is PPF.
Public Provident Fund is the small saving scheme that has assurance from Govt of India on the investment and interest.
You can open PPF account with any major bank or at a post office.
PPF account has lock-in period of 15 years, hence you cannot withdraw whenever you want. However, partial withdrawals are allowed based on certain terms and conditions and after certain period.
This is a low risk investment option.
Investment done in PPF is eligible for income tax exemption u/s 80C upto Rs 1.5 Lakhs per year. If you invest any amount higher than this would be returned back to your SB bank account.
The interest rate is decided every year by the Ministry of Finance. The Current PPF Interest rate is 7.9% per annum for the investments done during 1-Jul-2019 to 30-Sep-2019.
PPF has provided 7.9% to 8.75% annualized returns in the last 5 years.
Interest received from PPF is tax free. Means, you don’t need to pay income tax on the returns.
Public Provident Fund is one of the good Child Investment Plans in India for low risk investors who want safe returns after 15 years time frame.
#5 – Invest in Sukanya Samriddhi Account for your girl child
Now, let us move to saving money for your girl child.
Sukanya Samriddhi Account (SSA) is the small saving scheme that has assurance from Govt of India.
You can open SSA account with any major bank or at a post office.
You can invest in this Sukanya Samriddhi account when a girl child is less than 9 years old.
SSA has lock-in period of 21 years, hence you cannot withdraw whenever you want. However, withdrawals are allowed based on certain terms and conditions and after certain period.
This is a low risk investment option.
Investment done in SSA is eligible for income tax exemption u/s 80C upto Rs 1.5 Lakhs per year.
The interest rate is fixed every year by the Ministry of Finance. The Current SSA Interest rate is 8.4% per annum.
SSA has provided 8.4% to 8.9% annualized returns in the last 5 years.
Interest received from SSA is tax free. Means, you don’t need to pay income tax on the returns.
Sukanya Samriddhi Yojana is one of the good Child Investment Plans in India for low risk investors who want safe returns which can be used for a daughter’s marriage or daughter’s higher education (which you want to plan beyond 21 years of age).
#6 – Invest in Liquid Mutual Funds / Bank FD / Bank RD for short term goals
You might have short term financial goals for your child. You can invest in liquid mutual funds or Bank FDs or Bank Recurring Deposits.
As the name indicates, Liquid Mutual Funds has high liquidity and you can quickly sell off and get the money within 1 working day. You can invest your investments in liquid funds for short term goals. Liquid Mutual Funds can provide 6% to 8% annualized returns. If you have money and need to pay money for your child education in next 1 month or 3 months or 6 months, investing in liquid mutual funds can be a good idea.
If you don’t want to take risks by investing in mutual funds for such short term goals, you can invest in bank FDs or recurring deposits that offer the highest returns between 7% to 8% per annum.
Liquid mutual funds or Bank FDs are low risk investment options.
Returns received from liquid funds are taxed based on STCG if these are redeemed within 3 years. Interest received from bank FDs or RDs are taxed based income tax slab of the individuals.
Which child investment plans should you consider?
This would depend on child age, your risk appetite and tenure of investment.
1) If you want to take high risk and invest for 5-7 year tenure, investing in large cap mutual funds could be a good idea.
2) If you are moderate to high risk taker and want to invest for at least 5 years, investing in a balanced mutual fund could be the best option
3) If you want to invest for 15 year period for your child’s future and looking for fixed income with low risk, Public Provident Fund could be the best bet for you.
4) If you want to save for girl child, Sukanya Samriddhi Yojana Account could be one of the best ways to save for your daughter’s marriage.
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Suresh
Top 6 Child Investment Plans in India for higher returns
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Hello everyone,
Thanks for posting this wonderful blog. It is very helpful.
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Hi Suresh,
Thank you very much for the timely article.
Honestly I was thinking of requesting you to write such a blog with respect to investments/savings for children.
I have one more request for you to enlighten us towards the investments/savings to be done for life after retirement. Kindly write one when you get time.
Keep rocking.
Regards,
Prashanth