5 Best Tips for choosing Best Child Investment Plan in India 2021
Santhosh and Priya have just become the parents of a baby girl. The couple in their early 30’s are quite excited about the new entrant to their family and have already lined up mega plans for their kid. Though both work in the IT sector, Priya plans to take a break from her job and care for the baby. Having seen the havoc created by COVID-19, Santhosh is very keen to start investing early for the kid considering the uncertain situation of life. He has started reading online about the various child investment plans and their features and looks to stay invested for at least 18 years till the girl is ready to join college. With many investment avenues available in India, he is looking to put his money in the best investment plan for the child’s future that will help him reap maximum returns in the future.
Children are always special for their parents but for them to become truly special in this world; parents must provide the essentials to the kids until they are free to branch out on their own. To achieve this level of financial freedom, starting to invest early for a longer term is the right strategy. It helps build a sizable corpus for kids to use for college, higher education, marriage, etc. Everybody looks for the best investment plan for the child’s future, but the requirement differs for each individual.
5 Important Tips to choose best Child Investment Plan in India 2021
There are a large number of child insurance plans available in the market, so parents do not have it easy when it comes to selecting the best investment plans for their child. Here is the list of 5 important tips that will help you choose the best child investment plan in India as mentioned below:-
1. Fix the Goal
It is important to have an investment goal before starting saving for kids as it will help you understand the value that is required. The goal could be anything ranging from – school education, higher education, foreign studies, marriage, etc., but fixing the goal should be the starting point to save for the child’s future. Once you can choose the goal, then selecting the appropriate investment option should become easy. Hence, you must first decide on the goal which will motivate you to work towards it with dedication and involvement.
How long will you stay invested? This should be the next question that you need to answer to choose the right child-saving plan. The tenure of investment plays a vital role in generating expected returns. For example, suppose you choose to invest in stock markets. In that case, the optimal period you must be willing to stay invested is between 3 to 5 years, as it is the right period to stay invested and expect significant returns. Similarly, child plans also require longer investment tenure to generate higher returns to help reach your goal.
On the other hand, if you choose to invest in fixed deposits, a minimum of 1 year of investment is required to fully utilize the returns. Similarly, Sukanya Samriddhi Yojana, one of the best investment plans for the girl child in India provides guaranteed returns but has a lock in the period from the date of investing till the girl child reaches the age of 21 years, which can be redeemed for her college education or marriage expenses. So, when talking about the best saving plan for the child, staying invested for longer tenures will help you fetch good returns for your child’s future.
3. Rate of Returns
The rate of returns differs for each child investment plan, based on the tenure and area of investment. For maximum returns, one can choose to invest in Systematic investment plans of mutual funds that provide an average return of 15-18% based on the market performance. For a slightly lower return ratio, debt mutual funds can be explored. Child insurance plans are a good bet if you are looking for investment and insurance combined into one single product. From the statistics, one can safely understand that the longer the duration of the investment option, the higher the returns.
4. Risks Involved
Every investment option, even if it is the best child plan in India carries a certain amount of risk. The greater the reward, the higher will be the risks involved. Investments in mutual funds and stock markets carry the maximum risk due to market volatility, increasing or decreasing your portfolio value. Gold funds/ ETFs do not carry a lot of risks as Indians are known to invest in gold heavily. But the investment horizon in such plans should be higher to realize good returns. On the other hand, there are less risky investment classes such as post-office savings schemes, national savings certificates, etc., which carry very little risk since the government of India issues them. Therefore, assess the risks involved beforehand in any investment options before putting your hard-earned money into it, as it will help you with higher returns over a longer investment duration for their child’s goal.
You may have chosen the best investment option for children, but it is compulsory to pay income taxes on the returns generated. With each investment plan having its own taxation rules, you have to understand it and calculate the effective returns after-tax before investing in them. For example, if you are investing up to Rs 1,50,000 in Sukanya Samridhi Yojana (SSY), it can be claimed as a deduction under Section 80C of the Income Tax Act. In addition, the returns from SSY are also entirely tax-free. Similarly, Unit Linked Insurance Plan, investments in equity mutual funds, and withdrawal from the same carry a specific taxability rate, which you need to clear before pledging to invest in them.
There are many long-term investment options for children’s benefit, including some post office schemes for a boy child and investment plans for the girl child. Assess each of those plans through the above-mentioned parameters to shortlist the best investment for child education or any other purpose as your start at a young age will help reach greater heights in the future.