Financial security is the best gift that you could ever give your child. There are different types of long-term investment options to help you ensure that your child has a secure future. Five best options are discussed in this post.
Providing a promising future to their child is one of the biggest responsibilities for every parent. Today, there are several long-term investment options to help parents achieve this objective. Here is a list of top five investments that parents can consider for a bright and financially secure future of their children:
- Child Investment Plan
Child investment plans are generally Unit Linked Insurance Plans (ULIPs), which offer a combination of insurance and investment. In other words, it is a type of life insurance product that helps you generate returns. In case if the policyholder (parent) dies within the policy tenure, the nominee (child) will receive the death benefit.
If the policyholder survives the policy tenure, he/she receives the maturity benefit, which can then be used for expenses like education or marriage. Moreover, with ULIPs, investors also get to select the type of fund as per their risk appetite and financial objectives.
- Sukanya Samriddhi Account
The government-backed Sukanya Samriddhi Account is an excellent long-term investment option if you have a girl child who is less than ten years old. Your investment in the account earns a fixed interest, which is announced by the government every quarter. Currently, the interest rate is 8.5%.
Investments made to the Sukanya Samriddhi Account is eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the IT Act. Even the interest earned from the account is tax-free. The account matures when your girl child reaches the age of 21 years.
If your aim is long-term wealth creation for your child, Public Provident Fund (PPF) is also a great option. Your investment in PPF earns a fixed rate of interest. It has a maturity period of 15 years, and investments of up to 1.5 lakhs in a financial year are eligible for tax deductions under Section 80C. Even the interest income is tax-free.
Moreover, you also get the option to extend the maturity in blocks of 5 years after completing the initial maturity of 15 years. There is also an option to select a nominee for your PPF account.
- Mutual Funds
To build a corpus for your child, you can also consider investing in mutual funds, like equity and debt funds. If you want returns along with tax-savings, you can also consider investing in Equity Linked Savings Scheme (ELSS). These are equity-oriented mutual funds that are eligible for tax savings under Section 80C.
You can either invest a lump sum amount or start a SIP with as little as Rs. 1,000/month. But note that returns from mutual funds are market-linked. So, select a fund as per your risk appetite and financial objective.
- Recurring Deposit
Traditional investment plan like Recurring Deposit (RD) are also excellent for long-term financial goals. Unlike Fixed Deposit (FD), which requires you to invest a lump sum amount for a fixed period, RD allows you to invest a fixed amount every month for up to a tenure of your choice.
The invested amount then earns a fixed rate of interest, which is paid, along with the invested capital, at the end of the tenure. Some banks also offer additional facilities like loans against RD.
Selecting the Best for Your Child
Make sure that you thoroughly understand the investment option you select so that your hard-earned money delivers the returns you expect.