Best Investment Plan for Child

All parents strive to provide their children with a stable and comfortable life and work hard to ensure a secure future for them. With rising costs and education expenses, choosing the best investment plan for children is of prime importance. 

You can build a strong financial security net for your child with the help of an investment plan. There are several child investment plans in India, and you must research the features and benefits of each before zeroing in on the best child plan for investment. You must analyse your needs, budget, and suitability. The three things characteristic of the best investment plans for a child are safety, returns, and tax deduction. In this article, we dive deep into the features and benefits of each child investment plan to help you make an informed decision.

Also Read: Best Investment Plan for Child Education

What are the Best Investment Options for your Child?

A child investment plan is an option that helps parents invest today for the child’s future well-being. The returns from these plans can be utilised for the child’s education expenses, wedding, or healthcare. 

• Bank Deposits – This is the traditional investment option where parents can deposit money into the child’s savings account by opening a Fixed Deposit or Recurring Deposit.

• Insurance Policies – This involves investment in child-specific insurance policies, and the maturity amount can be obtained as a lump sum to cover any big expenses.

• Public Provident Fund – PPF is an ideal long-term savings scheme for children as it offers a good interest rate and benefits earned are tax-free.

• Gold – Gold is a valuable investment option due to its non-depreciating nature.

• Mutual Funds – There are specific mutual funds designed for children. Mutual fund investments are typically hybrid, and investors can choose equity or debt allocation according to their risk appetite.

• United Linked Insurance Plans (ULIPs) – ULIPS combines investment and insurance and is a great child investment plan option.

• Sukanya Samriddhi Yojna – This is an investment plan for the girl child in India that can be opened in any bank or post office.

• Post Office Savings Scheme – One of the oldest forms of savings, there is a wide range of schemes available at the post office that you can choose from for your child.

• Stocks and Mutual Funds – Investing in stocks is risky, but it generates good returns in the long run, working as an ideal long-term investment plan for child development.

Systematic Investment Plans – These allow small, regular goal-based investments into mutual funds to help create a corpus fund for your child.

Also Read: Key Things to Know About the Ulip Tax Benefits

Bank Deposits

A child’s savings bank account has been the traditional investment vehicle for parents from time immemorial. Parents operate the child’s account until he/she becomes 18 years old. The deposited money in the savings account earns regular returns. The deposits can be Fixed or Recurring. Fixed deposits are offered by all banks with a specific amount for 3, 5, or 10 years at rates between 3% and 9% p.a. (these rates are revised by periodically). The invested amount and interest can be withdrawn at the end of the tenure. 

Eligibility Criteria

Residents, Hindu Undivided Families and minors who invest jointly with adults are eligible to invest in bank deposits. The main documents required for investment in bank deposits are documents showing identity proof (passport, PAN card, driver’s license etc.) and address proof (passport, utility bill etc.).

Benefits

• FDs are safe, flexible, and offer decent returns. 
• FDs involve low risk with an interest rate unaffected by market changes.
• Many banks have child-specific FD schemes.
• You can make periodic small investments for a fixed interest rate in an RD.  

Also Read: Best Investment Plan for Girl Child in India

Insurance Policies

Several insurance companies offer child-specific insurance policies that provide life cover and death benefits. The insured must pay a regular premium and at maturity the compounded amount is given as a lump sum. 

Eligibility Criteria

The general eligibility criteria to apply for term insurance are:

• The applicant must be between 18-65 years.
• The applicant must be an Indian citizen.
• The applicant must undertake the required medical tests.
• The applicant must submit the necessary documents, including pay slips.
• For child-specific plans, the minimum entry age is after birth, the maximum entry age is 12 years, and the maximum maturity age is 25 years.

Benefits

• Insurance reimbursement can be used to cover any unforeseen expenses such as education or health.
• Insurance policies also offer a tax deduction for the premium paid under section 80C of the Income Tax Act, 1961.
• Additionally, all benefits gained, including maturity and death, are exempt from income tax up to certain limits.

Also Read: Best Investment Plan for Girl Child in India

Public Provident Fund

Public Provident Fund is a government-backed scheme where the government determines the interest rate every quarter. PPF has provided 7.1% to 8.7% interest in the last 5-6 years, has a maturity period of 15 years, and offers a higher rate of return when compared to FDs and Savings accounts.

Eligibility Criteria

Any Indian citizen can open a PPF account in his name or on behalf of a minor, but he cannot open a joint account or one for HUF. An individual can open a single account in their name.

Benefits

• Offers a high rate of interest compared to other investment instruments.
• The principal, interest, and returns earned through PPF are exempt from tax under Section 80C of the Income Tax Act.
• The long lock-in period makes PPF one of the best child investment plans.
• It has assurance from the Government of India.
• PPF is a relatively low-risk investment option for parents who wish to get safe returns after 15 years.

Gold

Due to its appreciating nature, gold is a good hedge fund investment that can hold up against inflation. Apart from jewellery and coins, there are now digital options in gold investment, such as GOLD ETFs (Exchange Traded Funds), mutual funds, and SGBs that can be traded electronically.

Eligibility Criteria

Residents, Hindu Undivided Families and minors who invest jointly with adults are eligible to invest in gold. The main documents required for gold investment are identity proof (passport, PAN card, driver’s license etc.) and address proof (passport, utility bill etc.).

Benefits

• Digital gold investment is safe as they come with no additional security or storage cost.
• There are no making or wastage charges in gold investment.
• Gold investment is more liquid as you can sell the mutual fund or ETF on the stock exchange and buy physical gold.

Stocks and Mutual Funds

Stocks are risky investments but offer high returns in the long run. Two types of mutual fund investment – lump sum payment or a Systematic Investment Plan (SIP) are available. In SIP, a certain amount is set aside from your account each month until it reaches a specific target and is invested in a mutual fund. There are hybrid mutual funds for children as well that give the option to the investor to choose debt or equity or both based on their risk appetite. Mutual funds are the ideal option to meet your child’s long-term financial goals. 

Eligibility Criteria

To invest in mutual funds, the investor must open an account with the fund house or link his existing bank account to the fund house. He must also complete the KYC, fill in the application form, and submit identity and address proof documents.

Benefits

• Both stocks and mutual funds generate good returns (between 12% to 16%) over an extended period in the long run. 
• There are multiple options to choose from in mutual funds, such as small/mid/large cap, debt funds, equity funds, etc.
• Investing in SIP helps individuals to manage volatile markets in the long term.
• Stock and mutual fund investment can help to create a corpus fund for your child.
• Since mutual funds do not have any lock-in, you can opt for partial withdrawals if required.

United Linked Insurance Plans (ULIPs)

ULIPs combine the features of investment and insurance. You pay regular premiums, but a part of the premium is invested in certain market-linked instruments. It is a great child investment plan as it can help you meet the child’s marriage or education needs. In the event of the policyholder’s unfortunate demise, the child will receive a lump sum according to policy terms. Some plans even come with a premium waiver where the child continues to receive periodic payments for educational needs.

Eligibility Criteria

To invest in ULIP, the policyholder must be 18 years or older, the maximum age is 60 years, and the maturity age is a maximum of 75 years. ULIP child plans have one year as the minimum entry age, 60 years as the maximum entry age, and the minimum maturity age will be 18 years.

Benefits

• ULIPs give greater returns than traditional investment methods and are ideal for your child’s long-term needs.
• As a part of the ULIP premium is invested in capital market funds, there are more chances of generating returns. 
• Your child is eligible for the insurance payout in the event of your untimely death, securing his/her financial position. 
• ULIP plans invest in equity markets with higher returns than other insurance types.

Sukanya Samriddhi Yojna

Sukanya Samriddhi Yojna, or SSY, is one of the best investment plans in India for a girl child started by the government of India. SSY can be started at the birth of the child or before she turns 10 years old. The SSY can be opened at a commercial bank or a post office. The tenure of the Sukanya Samriddhi scheme is 21 years or until the girl gets married. After she turns 18, she can manage the account by herself.

Eligibility Criteria

The account can be opened by the parent or legal guardian of the child aged 10 years or below. The depositor can open only one account for one girl child, and a family can open a maximum of two SSY accounts (for 2 girls).

Benefits

• The interest rate is fixed by the government and is currently 8.0% p.a.
• Upon policy maturity, the compounded amount can be used for the education or wedding of the girl child.
• The SSY allows you to save money for every stage of your child’s life, such as education, wedding, etc.
• You can begin the SSY account with a minimum of Rs.1000.
• Being a government-backed scheme, the SSY scheme is safe and reliable.

Bottom Line

Every parent only wishes the best for their children. To achieve this, they must select the best investment plan for their child in advance. With proper research and analysis of India’s best child investment plans, they can build a strong and secure future for their child. However, before deciding on a plan, the parents must thoroughly research each investment plan to analyse which is the best choice for them. This is because every plan offers different benefits that might suit one investor but not another. Therefore, make sure to research the investment plan before starting your investment to ensure a wise decision.

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