23-09-2022 |
Every parent wants to secure their child's future and provide the best life. The cost of living and education expenses continue to rise every year, making financial planning more important. Responsible parents understand that they must start investing early to build a financial foundation for their children. Starting investments in child plans before your child grows up helps you prepare for their future needs. This article explains 7 investment options for a child’s future.
What Type of Investments Can Be Made for a Child?
The investment for a child’s future depends on your earnings, risk tolerance and your child’s age. You can consider the following plans.
Life insurance plans
When it comes to ensuring that a child has a secure future, life insurance plans offer savings benefits along with a life cover option to protect the child’s future. These are the three child insurance plans that can help you prepare for your child’s future needs:
Unit-linked insurance plan
A ULIP plan comes with a 5-year lock-in period, which helps build a steady investment corpus for the first 5 years of the policy term. Additionally, you can invest in equity, debt or balanced funds. With a flexible choice of fund options, parents can choose to invest in one or more of these fund options to earn market-linked returns. Since ULIPs are quite flexible, you can choose the policy term and the premium payment term to align the investment tenure with the future financial needs of your child.
Money-back insurance plan
A money-back insurance plan offers survival benefits at regular intervals during the policy term, which can be useful in case you need to pay your child’s education fees from time to time. At the end of the policy term, the child can avail of the maturity benefits to fulfil their education and lifestyle needs. With these dual payout benefits, money-back plans can financially support your child’s needs, even in case of the demise of one or both parents.
Endowment insurance plan
Child insurance plans are also available as endowment plans, which can be useful for long-term savings for your child. After the policy matures, a lump sum amount is paid out as the maturity benefit. Hence, if you are saving for your child’s further education or career aspirations 10-12 years down the line, an endowment plan lets you decide how you want to utilise the lump sum monetary benefits for your child’s future.
With Tata AIA Life Insurance, you have the liberty to select a suitable policy for your child’s dynamic needs so that money does not affect how they choose to pursue their dreams!
Other investment options
The following are some other investment options for children's future.
Sukanya Samriddhi Yojana
The Sukanya Samriddhi Yojana is a savings scheme especially for the girl child; it allows you to invest a minimum of ₹250 and a maximum of ₹1.5 lakh. This investment can start as early as the girl’s childhood, before the age of 10 years, and mature when the girl is 21 years of age, and partial withdrawal can be done when the girl turns 18.
The SSY investment can also be useful for saving through tax* benefits. Under section 80C, tax deduction of up to Rs 1.5 lakh is possible. If you have two girl children in the family, you can invest in two accounts.
Recurring deposits/fixed deposits
Fixed deposits and recurring deposits are two traditional savings methods that can help build a corpus for your child if you are seeking low-risk investments. With fixed returns on the investment, you can approach your bank and start an FD or an RD easily. A fixed deposit can be helpful if you are going for long-term savings with a lump sum amount, while a recurring deposit can be suitable for regular investments over a shorter term.
Debt mutual funds
Debt mutual funds carry moderate risks and invest in fixed-income securities such as corporate debt securities, corporate bonds, government bonds and other similar money market instruments. The returns from debt mutual funds are subject to market fluctuations. However, the risk in debt funds is considerably lower compared to equity mutual funds. Debt funds can help invest funds in your child's education because you have a medium- to long-term investment horizon.
The performance depends on the underlying securities in which the fund invests. Financial advisors can help you select appropriate debt mutual funds based on your risk tolerance and investment goals.
Public Provident Fund
Public Provident Fund (PPF) is an investment scheme in which you can keep your surplus funds, and you’ll earn apt returns at a 7.9% interest rate per annum. You can invest funds which your child got as a gift; it can be a small investment of ₹500-1000, and you can increase the annual investment to ₹1.5 Lakh, either through a lump sum or an instalment.
In case you need to plan additional finances for your child, you can also take a loan against the PPF account between the 3rd and 6th years of the tenure.
Which investment option is apt for your child's future?
The needs of every child, their lifestyle, and their education can be different, and parents can decide how they can create an investment plan for their child. Considering that child investment plans offer some specific benefits, a child insurance plan can be a suitable option.
This is because there are additional features under child insurance plans, such as a waiver of premium benefit. This benefit comes into effect on the demise of one or both parents or any similar unfortunate event. Hence, the future premiums on the policy are waived off until the policy matures and the benefits are paid out to the child.
Child insurance plans are also quite flexible because you can align the investment with your child’s goals as per the policy term and premium payment term of your choice. This makes it easy for you to meet their financial needs through investment, while the life insurance cover protects them throughout the policy term.
Conclusion
A child investment plan helps you prepare early for your child’s important milestones. When you compare different child investment plans, you can choose options that align with your goals and budget. By starting early, your investment has more time to grow and support future needs. As you invest money regularly and stay disciplined, you build a strong financial base for your child. Selecting the right plan ensures steady growth and long-term financial protection for your child’s future.
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