Children’s Day 2023: Children’s Day offers a great opportunity to consider how we might secure our children’s long-term financial security. Instead of spending a lot of money on things your kids might not use for a long time, use this day to start making preparations for their education, marriage, and other important life events.
Relying on Bank Account Savings
To protect your child’s financial future, you might not be able to rely just on bank account savings. The value of your money may gradually decrease due to the effects of inflation. Furthermore, the growth of your money could be somewhat sluggish because to the generally modest interest rates that banks offer.
Public Provident Fund (PPF)
The National Savings Institute of the Ministry of Finance launched the Public Provident Fund (PPF), a long-term savings and investment programme, in 1968. This scheme’s main goal is to promote small savings by offering an avenue for investments with respectable returns and income tax advantages. Any Indian citizen, even those underage, may open a PPF account at any post office or bank branch with authorization. Each financial year, the minimum and maximum deposit amounts are ₹500 and ₹1.5 lakh, respectively. Depositors can choose to make half-yearly, quarterly, or monthly installments.
Every quarter, the interest rate on PPF deposits is set by the government. The interest rate as of right now is 7.1% annually. Every year at the end of the fiscal year, the principal amount is increased by the interest that has been generated, a process known as compounding. In the ensuing fiscal year, the interest is then computed on the revised principle amount.
Sukanya Samriddhi Yojana
The government-backed Sukanya Samriddhi Yojana (SSY) is a savings programme designed especially for youngsters who are female. The main goal of the Beti Bachao Beti Padhao (BBBP) campaign, which launched the programme in 2011, is to encourage parents to set aside money for their daughters’ future well-being. Any Indian citizen, even children, may open an SSY account at a post office or authorised bank branch. A monthly deposit of ₹250 is the minimum, and an annual deposit of ₹1.5 lakh is the maximum. Demand draughts, checks, and cash can all be used to make deposits.
The interest rate on SSY deposits is set by the government and is now eight percent annually. This rate is adjusted on a quarterly basis. The interest is compounded annually, meaning that at the end of each financial year, the interest earned is added to the principal amount, and the interest for the next year is computed on the new principal amount. SSY accounts are intended to be used for a minimum of 21 years, or until the girl child turns 18 or marries. If the little girl suffers from physical or mental impairments, or in the sad case of her death, the account may be prematurely closed.
Unit Linked Insurance Plans
Unit Linked Insurance Plans (ULIPs) are investment-linked insurance products that offer investment opportunities in addition to insurance coverage. A portion of the premium is allocated by policyholders to market-linked funds, and the performance of these funds determines the returns.
Investment and insurance: ULIPs, which combine insurance and investing, give parents the chance to get life insurance for their child while growing their assets through investments in a variety of funds.
Long-term investment horizon: Because ULIPs have a lock-in duration of five to ten years and a typical long-term investment horizon, they are a good option for saving money for a child’s future objectives, such marriage or college.
Flexibility: With the flexibility that ULIPs provide in terms of fund selection and premium payment, parents can customise their investments to suit their risk tolerance and financial goals.
Tax benefits: Parents can use ULIPs to lower their taxable income by paying premiums that qualify for a tax deduction under Section 80C of the Income Tax Act.
Mutual funds
A type of investment known as mutual funds is one in which money is gathered from multiple investors to purchase a diverse portfolio of securities. They offer a useful way to save for a child’s goals in life, such as getting married or going to college. Parents can see how their money grows over time by making a little monthly investment. Moreover, parents find mutual funds to be a more appealing investing option due to their tax advantages.
National Savings Certificates
The National Savings Certificate (NSC) is a popular option among conservative investors due to its guaranteed earnings and minimal risk. Since it is a government-backed programme, there is no default risk. In addition, NSCs offer tax benefits under Income Tax Act of 1961 Section 80C.
Interest rate: The current yearly compound interest rate on NSCs is 7.7 percent. The government sets this rate, which is updated on a quarterly basis.
Investment period: The five-year maturity time of NSCs is set in stone. After a year, early withdrawal is allowed, but there will be a cost.
Minimum investment Amount: NSCs have a ₹100 minimum investment requirement; there is no maximum amount.
Eligibility: Any Indian citizen may invest in NSCs, either alone or in combination. NSC investments are not available to trusts, Hindu Undivided Families (HUFs), or non-resident Indians (NRIs).
Fixed deposits
In India, fixed deposits (FDs) are a popular option for investors because of their minimal risk and guaranteed returns. Accessible through many banks and financial establishments, investors possess the adaptability to choose the duration and interest rate that correspond with their particular needs.
Gold investments
Gold is a popular investment option among kids because it is seen as a reliable, long-lasting item that will increase in value over time. It can be found in a variety of products, including bars, jewellery, coins, exchange-traded funds (ETFs), sovereign gold bonds (SGBs), and gold mutual funds.
Safe and dependable: Due to its historical stability, gold is a trustworthy asset that has continuously increased in value. Because of this feature, it’s a good long-term investment for kids because it has room to grow.
Inflation hedge: Because of its propensity to appreciate in value in tandem with rising prices for other products and services, gold is frequently considered a hedge against inflation. This feature protects children’s savings from inflation’s damaging impacts.
Tangible asset: Compared to less tangible investments like equities and bonds, gold has a special allure for some investors since it is a tangible commodity that can be handled and owned.
Diverse investment options: Gold gives investors flexibility by giving a variety of investing opportunities. Investing in paper gold through gold mutual funds, exchange-traded funds (ETFs), or SGBs is an alternative to purchasing real gold in the form of jewellery, coins, or bars.
Long-Term Investment Options for Kids
Among the long-term investing options available to kids, real estate is particularly appealing because it can provide both capital growth and a steady supply of rental income. Nevertheless, before making an investment decision, it is imperative to carefully weigh the benefits and drawbacks. Furthermore, these investments may provide children with long-term financial security. Rent can be reduced if you decide to live on the property. As an alternative, they can use the earnings from the sale of the property to fund their retirement or other financial goals.
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