Financial expenditure for children’s education and basic needs like marriage is a vital part of any family expenditure.

One of the biggest responsibilities of a parent is to provide adequate financial assistance to children until they reach a self earning stage.

For Parents, to guarantee the return and safeguard the hard earn money, it is advisable to diversify the investments among the below-mentioned investment options for the children. After understanding about different plans to choosing the right investment option, considering the fact of high financial expenditure for the kid’s future, paying small fees for guidance from a qualified financial adviser, who can guide to select a suitable investment option, will be worth it.

In this article, we are covering the 10 investment options for children’s future in India, which can be started at a younger age and provide adequate returns during the time of requirement. Most of the children’s investment plans can start very easily and provides tax benefits to the parents.

The top 10 investment options are listed below.

1. Direct Equity Investment.
2. Mutual Funds.
3. Gold Saving.
4. Bonds and Debt investments.
5. Fixed Deposit in Banks.
6. Life insurance plan for children.
7. Public Provident Fund(PPF).
8. Sukanya Samriddhi Account (SSA).
9. Privet child investment plans.
10. SIP – Systematic Investment Plan.

The best gift a parent can offer for a kid’s birthday is a promising a secure financial future by investing in suitable investment instruments during their younger age birthday. Foreseeing the inflection rate and expected financial needs of the kids in the future and identifying the suitable investment plans is the talent of a smart parent.

Only the Basic details of the different plan are covered in this article, if you would like to know the further details of each plan, click on the respective links below.

Equity Investment

Parents can open a Demat account for their children and start acquiring stocks and invest it for the children as in the long run equity market outperform any other investments. Equity investment in blue-chip companies is the best investment plan for higher returns for the children. In addition, if a parent doesn’t want to open a separate Demat account for the kids, they can start purchase the quality stocks and hold them in their account, and later they can transfer it to the children’s account as a gift to them.

• These stocks children can use for their financial needs in the future.
• It is advisable to have adequate knowledge in equity and share markets before considering it as a prime choice for a child’s future.

Mutual Funds

Mutual funds are one of the best investment options for a parent, who doesn’t have much knowledge in the equity market, for their kid’s investment as it provides a guaranteed return in long run. Early starting of a mutual fund helps parents to achieve future long-term goals like marriage, child’s education, etc.

• A parent can start investing monthly as small amount as Rs. 500 per month in SIP mode or as a lump-sum amount in the kid’s name.
• It is ideal to have hybrid mutual funds if it is for the children.

Gold Saving

Gold is a guaranteed return investment option for children’s future. A parent can invest in Gold either by purchasing the physical gold like coins or ornaments or electronic gold like Gold ETFs (Exchange Traded Funds) or SGB (Sovereign Gold Bond). It can be liquidated easily at any time, in the need of money.

• Considering the factor of safekeeping, it is ideal to purchase the electronic gold, if it is for the long term.
• A parent can purchase the electronics gold online through a trading account of a trade broker and store it in the Demat account.

Bonds and Debt investments

As Bonds and Debt provide the yearly guaranteed return, which will be higher than a bank FD, it is the best option for a parent to invest for the future of the children. A parent can buy the bonds through the trading account just like other equities and stores in the Demat account for the kid’s future. Parents can also use some of these investments for Tax exemption purposes.

• There are also tax-free government bonds available, which will provide the benefit of tax exemption for the parents.
• Investments in short-term debt funds are the ideal options to meets the child’s recurring expenses like school fees.
• Short-term funds are flexible as they can easily liquidate as and whenever required.

Fixed Deposit in Banks

In India, Bank Fixed Deposit is the most popular investment option for most parents for children as it offers a risk-free guaranteed fixed percentage of returns. Fixed deposits can start for any period of time and they can be broken at any time to meet the financial needs of the children. It is better to have multiple small amounts of FD than a single large amount of FD as it helps to break one or two of these small FD’s, instead of a single large one if any financial emergency comes in between and other small FD’s can continue smoothly.

• Parents can also start the Recurring deposit in the name of the children so that it will offer the corpus over the long run.
• There are also much tax exempted fixed deposits for 5-years, which will offer a guaranteed return to the children and tax exemption to the parents if the children are minor.
• On maturity of the FD (principal + interest), parents can easily renew it online or offline for long-term growth.

Life insurance plan for children

It is ideal for a parent to start a life insurance plan for the children as it provides insurance coverage for them along with the investment. Most of the children insurance plan provides a corpus for the child during the maturity, it can be used for their higher education and other financial needs. There are also have few dedicated investment plans available for child education in India. One-time investment plans for children in LIC is easy to start and invest in.

• An important factor that needs to consider during the selection of a plan is that an insurance policy needs to cover the financial needs of a child even in the absence of parents.
• Parents can start the insurance policy online in the LIC web-portal or through the portal of other private insurers or directly from their offices.
• Most of the insurance plan help to save tax to the parents under 80C of Income Tax act, if the kids are minor.

Public Provident Fund (PPF)

An easy and secure investment option for the long-term goals of the children is to start Public Provident Fund during the early age of the children. A parent can start the account at any age of the children and earns a fixed rate of interest (Yearly it very) which will be much higher than a Fixed Deposit can offer. The account can start through any nationalized bank or through the post office. PPF is one of the best child investment plans in the post office.

• The minimum lock-in period is 15 years and it can extend in blocks of 5 years.
• To maintain the account parent need to invest a minimum of Rs. 500 in an FY.
• Parents can also claim tax exemption under 80C if the child is a minor, maximum up to 1.5 lakh.

Sukanya Samriddhi Account (SSA) 

Sukanya Samriddhi Account (SSA) is one of the best choices for a parent who had a girl child under 10 years. It is the best child investment plans of the government for the girl child. It offers a guaranteed fixed return higher than a PPF account. A parent can start the SSA account in the name of the girl child through the authorized bank or through the post office. A girl child will be the primary account holder and a parent/legal guardian will be the joint account holder.

• The minimum deposit amount in a financial year is only Rs. 250.
• A parent can claim tax exemption for the deposited amount into the SSA account maximum of up to 1.5 lakhs in a financial year.
• SSA account has a minimum tenure of 15 years and needs to become 21 years of age.
• The amount can be withdrawn only if it is matured or for the financial need of the girl child like higher education or marriage.

Privet child investment plans.

There are many private companies like Bajaj, Birla, and banks like ICICI, SBI offers many child investment plans for the child’s higher education and other future financial needs. These investment schemes can start just like a mutual fund from the investment agencies. There is much one-time investment plan for newborn babies in India which will guarantee the financial needs for the higher education and marriage needs of the kids. Most of the investment brokers provide the child investment plan calculator on their website which will help to calculate the returns very easily.

• Most of the plans can start at any age of the children and even for a small period of 30 days.
• Most of the plans allow partial withdrawal even before the maturity period.
• Most of the plans have the premium payments in monthly or quarterly and the payments can be done through the standing instruction from the banks.

Few most popular child investment schemes in India.

• TATA AIA Super Achiever Plan.
• Max life Shiksha plus super plan.
• PND Metlife smart child plan.
• SBI Life – Smart Scholar.
• Canara HSBC Child plan.

SIP – Systematic Investment Plan

The best and easy way for parents to build a corpus for the children’s financial need is to start Systematic Investment Plans (SIPs) in the name of children. Debt or Hybrid Mutual fund SIPs can be a good option for parents for the kid’s education and marriage needs as they offer decent returns even when markets are down. If parents need higher returns from the SIP it is ideal to select equity mutual funds with a diversified portfolio.

• The advantage of SIP Investment is that it can be started with a small sum of Rs 500 in a month.
• As SIP investment works on the basis of Rupee cost averaging, parents need not worry about the market movements.
• The prime factor that needs to consider for selecting the fund for the SIP is the overhead other charges of the funds.

CONCLUSION

Start investing and saving for the children as early in life is the only way to build an adequate corpus for the future of the children. While a parent planning for an investment for the children it is important to make the right investment choices. To make the right investment choice, parents can get help from the financial advisers available with the fund managing companies.

The Parents need to give at most priority to secure and provide adequate financial support to children for their education and other basic needs. Proper financial planning and investments help parents to handle the financial needs of the children without compromising their financial current needs.

Currently, there are several investment plans that can be started for the children and provide considerable returns for their future. Well, the thought-out financial decision will offer a hassle-free future for the parents.

Thanks & Regards

Harry.

A systematic investment plan (SIP) is an investment instrument to invest small amounts periodically in mutual funds for a defined time period. The SIP amount can start as low as Rs. 500, and predefined intervals can be on a weekly or monthly or quarterly or half-yearly or yearly basis. Investing in SIP has many advantages, in that top 10 advantages are explained in this blog. In addition, this blog explains the difference between direct and regular SIP, and also Top-up, and normal SIP.

What is SIP?

10 Advantages of SIP?

What is direct vs regular SIP?

What is the difference between SIP and Top-up SIP?

Benefits of Systematic Investment Plans?

Why should invest In SIP?

How to start SIP?

What is SIP– Systematic Investment Plan?

A systematic Investment Plan (SIP) is a method of investing a fixed amount of money in fixed intervals in a mutual fund scheme. SIP investment plan is investing a small amount over time in fixed intervals for a higher return. A Systematic Investment Plan (SIP), helps investors to invest in a disciplined manner. If investors take the SIP option of investments, the investor need not worry about the market dynamics. SIP is a guaranteed return investment option as it is based on the power of compounding and rupee cost averaging.

10 Advantages of SIP?

1. Financial goals:

As SIP investment based on rupee cost averaging, our fund is safe, even in marker downfall time, we can plan and achieve our financial goals.

2. Wealth creation:

As SIP is a method of investing with discipline, over time it helps to create wealth. Also, it helped to develop the habit of disciplined Saving. SIP gives the benefit of starting early for fund creation.

3. Diversification:

In SIP Mutual funds investments, the funds will be diversified to different domains of investments, hence it will be safer if some domain is affected by market movement.

4. Able to invest in large funds:

As in SIP, we can start investing with a minimum of Rs. 500 per month and these funds will go to the large funds by a fund manager, which helps investors to get an opportunity to invest in large funds.

5. No worry about market movements:

In SIP as it can start any time and continue, it will not affect the fund, due to rupee cost averaging: SIP helps investors to escape from the risk of equity fluctuations.

6. Convenience:

Investors can instruct the bank to facilitate auto-debits. An investor can start and stop the SIP whenever feels to do so, other than funds had a lock-in period. SIP investment is easy to monitor, liquidate.

7. Fund managers:

As each SIP fund has a qualified fund manager to manage the asset, investors getting an option of investing and managing the fund without any additional cost of paying to an expert fund manager.

8. Compounding:

In SIP, as investors investing in a systematic manner in mutual funds, they are eligible to get the bonus shares and dividend, which will work as compounding of funds.

9. Easy to understand:

No need to do a deep study about the share market and its movements for investing in SIP. As all the fund management activities are taken care of by fund manages, investors no need to strain in daily finances matters.

10. Better returns: subject to market risks:

The fund can grow exponentially even after the SIP period is completed. After the SIP period, the rate of growth is based on the market movement.

What is direct and regular SIP?

In Direct plan SIP, an investor buys mutual funds directly from the mutual fund company usually from its own website or directly from the office. In Regular plan SIP, investors buy Mutual funds through a broker, adviser, or intermediary. In a regular plan, the intermediary gets the commission from the mutual fund company. Some mutual fund companies charge a small fee on the fund management to recover these commissions paid to brokers.

What is the difference between SIP and Top-up SIP?

Top-up SIP is a type of SIP in which an investor can revise the installment amount at pre-determined intervals by a fixed amount,  whereas in normal SIP fixed amount is invested at pre-determined intervals still the completion of the lock-in period.

Benefits of Systematic Investment Plans?

A systematic investment plan is a method to build a portfolio with a small investment amount in regular intervals in mutual funds. Investors choose this method to enter the share markets very easily and benefit in return by compounding. Disciplined Saving habit is the key to a successful investment. In SIP as fund managers take care of the fund, it is very convenient for investors to achieve the financial objectives.

• SIP will have all the benefits similar to mutual fund advantages.

Rupee cost averaging and the Benefits of compounding help investors to create wealth without spending the time to understand the market movements. As in SIP, the process is easy to start and stop and investors can instruct banks to facilitate auto-debits the amount from a bank account, make operations easy for the investors. As SIP can start at any time and easily, investors can start it at younger ages and get the benefit of starting early.

Why Should Invest In SIP

Here investors can see 5 reasons to choose the SIP investment instrument for fund growth than a lump sum investment.

1. Reduces average cost:

When investing through SIP, investors need to pay a fixed sum on a regular basis. Investors can buy more units when the market is down and lesser units when the market is up, using the same amount. Through this mechanism, investors will get the benefit of the price average cost for units.

2. Minimizes risk of Market fluctuations:

When investing through SIP, investors make periodic investments in the equities market, which helps investors to ride through the downs and ups with great ease.

3. Higher wealth creation by compounding, as investing early:

If an investor invested for a longer period, the result of compounding is higher. As an investor is investing for a long period, even with Rs. 500 per month, investors can enjoy the benefit of wealth creation.

4. Helps achieve life goals:

SIP helps to build a corpus amount over a specific period of time by making regular investments. This corpus amount help to achieve financial objectives like buying a home, retirement, children’s education, etc.

5. Diversification & Does not strain daily finances:

SIP provides the benefits of diversification, as it is going to different sectors of funds. The risks, thus, get spread out and do not need to strain daily finances and make the gains from different holdings.

How to start SIP?

To start investing on SIP first we need to decide in which mutual fund we need to invest, how much need to invest, and how long we need to invest. First investors need to understand the advantages of sip over lump sum investment in mutual funds to achieve the financial goals. To know the returns we can use easily available SIP mutual fund calculators available online.

Step by Step process for SIP investment.

Step 1: Select SIP mutual funds with the highest returns and which meet the financial goals.

Step 2: Select a suitable fund house or broker. We will get information` online by reading the reviews.

Step 3: Complete the KYC formalities with necessary documents with fund house or start a Demat and trading account with a broker, so that investors can do it directly.

Step 4: Select the mutual fund in which need to invest from the list of funds options available and select the option SIP.

Step 5: Complete the process by selecting the period, payment intervals, and installment amount.

Step 6: Provide the standing instructions, if needed.

Conclusion:

SIP is the easy method of investing in mutual funds in fixed time intervals. Investing in SIP mode help investors to manage the money and develop the habit of disciplined investments. As the process of starting the SIP is easy, even new investors can start it at an early age. As SIP provides the benefit of the power of compounding and rupee cost averaging, it is the most secure and easy investment option to meet the financial goals.

If you would like to learn more about the share market, we recommend reading the share market investment and trading books.

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