Children are indeed a gift from god. Right from the time of their birth – and on most occasions, even before birth – parents have great aspirations for their future. Every parent wants to ensure their child receives the best education, gets the best medical treatments, and leads a happy and healthy life. Parents work tirelessly to care for and nurture their children in light of these excellent possibilities.
 

However – as is with most good things – these prospects have a substantial cost attached to them. Therefore, having a premeditated game plan becomes imperative when you are considering how to save tax while securing your child’s financial future. The money you invest in your child can serve the dual benefit of not only relieving you from the stress of colossal expenses in the future but also being able to save a reasonable amount on taxes.  
 

Why is Saving for Your Child’s Future Important?
 

While being a parent is a rewarding experience, it is also undeniably challenging and expensive. Bearing the entire responsibility for a child at a time when the costs of education seem to soar can become quite a stressor. To combat this stress, it is important to invest in tax-saving instruments that also secure the future of your child.  Some other reasons why saving for your child’s financial future is important are:
 

• It helps you plan for uncertainties in the future. When you opt for an investment for your child, you consider erratic income flow for the future, which then serves as a reliable financial cushioning.
• It helps you inculcate the habit of saving in your children. Money management is perhaps the best teaching you can provide to your children. When you invest in their financial future, it displays commitment and dedication on your part which are two crucial characteristics to instil the nature of saving.  
• Buying a child insurance plan makes it easier to secure your child's education or personal loan. They are widely accepted as collaterals by all banks, which is a great benefit in case your child requires a lump sum amount to pursue higher education.
• Lastly and most importantly, child plans are among the best tax^#-saving instruments as they are rewarded with tax concessions on both – the invested funds and the benefits received. This will help reduce the financial stress from investing in them. Moreover, under Section 10D(D) of the Income Tax Act, child plans also enjoy tax exemptions, subject to policy terms and conditions.
   

Considering the aforementioned, investing in your child’s future is advocated for their financial wellbeing, and the sooner you intend to invest, the more rewarding it turns out to be. The younger your child is, the more they benefit from your investment and the more cost-efficient it is for you.   

What are the Best Tax-Free Investments for Your Child?
 

Section 80C of the Income Tax Act 1961, allows for the most efficient ways to save up on taxes by permitting a reduction in taxable income by making investments. As of today, when you opt for tax saving investments under 80C, you are eligible for a deduction of up to ₹1.5 Lakh per annum on suitable investments and specified expenses. We have enlisted tax-saving instruments under 80C to consider for your child’s bright future:
 

• Public Provident Fund (PPF): This is among the most preferred tax-saving instruments. A long-term investment tool the PPF comes with a lock-in period of 15 years. A parent can open an account on behalf of their child with a minimum investment of ₹500 every month and a maximum of up to ₹1.5 Lakh in a year. It is important to note that the maximum sum of ₹1.5 Lakh every year includes the accounts opened by you for yourself as well as for your children. The benefit of this scheme is that it not only helps you build a corpus for your child but also provides you with a tax benefit for all the years of investment. Upon becoming a major, your child can continue with the same account in their name, or the corpus can be withdrawn by you to be used for addressing your child’s needs.   
  
  
• Sukanya Samriddhi Yojana (SSY): The parent of a girl child can opt for SSY, which has to be opened before the age of 10 years. A benefit of this account includes that it carries the highest tax-free return of around 8-9% with a sovereign guarantee. The SSY account can be opened on behalf of your daughter with a minimum deposit of ₹250. The maximum deposit permissible in a year is up to ₹1.5 Lakh. The insurer needs to make regular deposits for 15 years, and the amount can be withdrawn when the girl turns 18 years of age. The lock-in period for an SSY account is 21 years from the date of account opening. The contributions made under the SSY account and the amount withdrawn upon maturity are both exempted from taxes.    
   
• Equity Mutual Funds: If you are looking for - returns over the long-term, equity mutual funds present themselves as an impressive option. Mutual funds linked to equity deliver inflation-adjusted results by investing in well-established companies that are relatively less volatile. If you are looking to build a corpus for your child, which you might require a decade from now, you can invest in large-cap funds. This is a form of secure investment and is among the best tax-saving mutual funds.
  
  

  While equity investments have several benefits, keeping an eye out for market fluctuations is recommended, especially when you are closer to achieving your financial goals. When your target draws near, you might prefer to shift your returns from equity to debt to be on the safer side.
   

• Life Insurance: Buying life insurance is the best financial gift you can give your child. While we don’t like to delve into morbid scenarios, the reality is that if the unfortunate were to happen to you, such as an accident, death, or terminal illness, you could ensure that your child’s financial future remains steady. Moreover, the premiums paid towards a life insurance policy and the amount received at its maturity are exempted from taxes.
  
  

  Acknowledging the changing financial needs, Tata AIA Life Insurance has designed various plans combining insurance with personalised needs. You can choose from term insurance plans, wealth generation solutions as well as savings-cum-insurance solutions.
   

  Savings-based life insurance plans are one of the best financial instruments to save for your child's future while also ensuring life cover and tax benefits^#. You can choose from guaranteed^* returns or income plans, wherein you get a regular guaranteed^* payout to take care of major expenses like higher education and your child's marriage.
  
  

How Can Life Insurance be a Good Option for Your Child?
 

A life insurance savings plan allows you to set aside money regularly to accumulate savings over time. Savings plans can be a good way to build a nest egg for your child's future needs, such as higher education, marriage, or buying a home. Depending on the specific plan, savings plans may offer guaranteed^* returns, tax^# benefits, and flexibility regarding contribution amounts and payment frequency.
 

Term plans can provide life insurance coverage to your child and secure their future with a payout benefit when you are not around. Term plans can help ensure that your child is financially protected in the event of your untimely death by providing a lump sum payout to your family if you pass away during the policy term. Term plans typically offer more coverage amounts than savings plans or ULIPs, and can be a good way to ensure that your child's future needs are taken care of in the event of your demise.
 

Lastly, a ULIP investment can be a good way to grow your funds over the long term while also protecting your child's future needs. You can choose from various funds under your policy that fit your risk profile and enable you to grow your wealth for your child's future goals. However, it's important to remember that ULIPs are subject to market risks and may not be suitable for everyone.
 

Your specific plan will depend on your financial goals, risk tolerance, and other factors.
 

Conclusion
 

To conclude before you narrow down on an investment plan to secure your child’s future, certain factors need to be taken into consideration, such as: 
 

• Set goals for a reason behind the investment
• Make sure you have considered factors such as inflation and fluctuating income owing to health-related uncertainties
• Analyze life insurance plans and choose the option that best suits your needs aligned with the needs of the future
  
  

L&C/Advt/2023/Mar/0721