Investment Options for Children/Minors
Birth of a child brings lot of enjoyment and happiness in lives of parents, grandparents. But, to raise a child is not so easy like it used to be in older time. Every parent wants their children to shine in all fields, whether its education or sports or music. Competition starts in a child’s life since he enters nursery school. And each and every parent wants to give the best education to children. And children have lot of options of studies, colleges are available. Best education, quality education needs money. And, after school, higher education needs more money. Like, when I took admission in Engineering college, I got a free seat due to my good score. So, my father had paid near about Rs. 60,000 for 4 years. But, now even school charges more fees for single year of schooling.
Everything has changed, education system, the fee structure. So, we need to think about child’s education from day one.
Early you start, more you save. Note that, apart from securing child’s future, you need to plan for retirement as well. So, early you plan, better amount you can save for future of child and your retirement as well. When you calculate investment and return, compounding factor plays an important role. Lets discuss investment options for minors.
Sukanya Samriddhi Scheme
- Government of India initiated Sukanya Samriddhi Scheme to supports the ‘Beti Bachao, Beti Padhao’ campaign.
- Current interest rate is 7.6% per annum and it is compounded annually.
- The minimum amount of investment is Rs 1000 and maximum of Rs 1,50,000 in a financial year.
- Parents or guardian can invest in this scheme on behalf of girl child before 10.
- Investment in the Sukanya Samridhhi Account is tax deductible under Section 80C up to Rs 1.5 lakh per annum.
- Girl’s age should be 10 years or less on the date of opening the account.
- The interest on the Sukanya Samriddhi Account is also tax free and the maturity amount is tax free.
- Investment will mature after the lock in period of 21 years but at the age of 18, 50% of the amount can be withdrawn for the purpose of higher education.
- The account will also have to be closed if the girl child becomes an NRI or loses her Indian citizenship.
- A parent/guardian can open maximum of two accounts in the name of two different girl children.
Public Provident Fund
- Public Provident Fund (PPF) is a long-term investment for a period of 15 years.
- PPF is currently offering an interest rate of 7.1% per annum and its compounded yearly.
- The Ministry of Finance revises the PPF interest rates every quarter.
- Anyone can invest.
- Minimum amount for investment is Rs 500 and maximum of Rs 1.5 lakhs in a financial year.
- Once invested, the investment is locked-in for a tenure of 15 years.
- 50% of the balance of the preceding year or end of 4th year can be withdrawn.
- Investments can be made in lump sum or in 12 equal instalments.
- Account can only be opened in a single holding form.
- You can invest in the name of minor also without exceeding your maximum limit of investment by combining balances of all your accounts
- Maturity period can also be extended to 5 more years on completing the period of 15 years and keep extending it.
- Can be closed prematurely after 5 years from account opening but only for serious ailments or higher education.
- Partial withdrawal is also permissible after the expiry of 5 years from the end of the year in which the account is opened.
- Investor can take loan from the 3rd financial year to the 6th year of account opening.
- Investment in PPF account qualifies for tax deduction under Section 80C of The Income Tax Act.
- Interest received is also fully tax-free.
- Child plan is insurance plus investment.
- It serves two purposes.
- It secures child’s future in case of unfortunate.
- It pays fixed annual income if unfortunate happens to parents.
- It invests in various options so child can receive good amount for his/her education. Of course, it depends upon the plan, how early you start and how much you invest.
Read more: Unit Linked Insurance Plan or ULIP
- Mutual fund is a pool of money managed by a trust that collects money from a number of investors sharing similar investment objectives and invests the same in equities, bonds, money market instruments, and/or other securities.
- Professional fund managers manage the money collected from the investors in line with the scheme’s stated objective.
- Mutual funds offer a diverse choice of investment options. The investor can choose a suitable option depending on the risk appetite, duration of investment, individual financial goals, etc.
- Mainly there are 3 types of mutual fund: Equity, debt and hybrid.
- Equity fund is risky as it invests money into equity market. And when you think about child’s education, you really don’t know how the market will be that time if you plan to redeem. For example, if your child needs money for higher education in year 2025. You really cant expect how market is going to be at that time if you plan to redeem money.
You need to consider tax also while thinking about equity mutual fund as you need to pay tax on it. But if you are planning to invest for long time then equity mutual fund is the best option.
- Debt fund is also one option available. Debt mutual fund offers better return than bank deposits. It is less risky to invest in debt mutual fund as it invests money in debt market. So, its always a good option. But, it needs long term planning. So, if you want less risky option then debt fund is more secured and better option.
- Investing directly into stocks needs lot of research and knowledge.
- Selecting right stock can give you a high return. But again, you need to have patience, practice, knowledge, research or an expert’s advice.
- But over long term period, stocks can give best result
- If you plan wisely like when child is small, invest in equity instrument, grow money and then transfer all your investment to less risky debt instrument.
- Gold ETF invest in physical gold or stocks of companies engaged in gold mining/refining.
- Its paperless form of gold so its less risky as you don’t need to store it.
- Investment in Gold ETFs can be made only in a dematerialized form so its mandatory to have demat account.
- Buying and selling of ETFs happen on a stock exchange (NSE or BSE)
- You can invest small amount monthly like in 1 gram of gold and accumulate more over a long period of time.
- You need to pay long term capital gain on ETFs.
- Physical gold is also a good option as you can convert it into jewellery at the time of child’s marriage.