For newly married couples, birth of the child is a time for joy and excitement. The hope and happiness also bring the responsibility to raise the child. Expenses like education and health are inflationary in nature. Hence you should aim to invest regularly and systematically in various investment options for the child. Some examples of such investment are Fixed deposit for the child, Child insurance plan, PPF, Sukanya Samruddhi account, equity mutual fund among others.
The very purpose of the fixed deposit is the safety of capital and assured return. Many young couples invest in bank fixed deposit, due to the safety net provided. However, safety is limited to Rs. 1 lacs insurance by the government. Any amount above Rs. 1 lacs in any bank is not insured by the government. Moreover, the FD rates offered by the banks are very low, raising the risk of lower corpus over the long run. You can use the FD Monthly interest calculator to measure the effect of even one per cent interest rate over the period of 15 to 20 years. Many reputed NBFCs like Bajaj Finance offers ‘bank-like safety’ and ‘better than bank’ interest rates on your fixed deposit. While you invest in NBFC FD, ensure AAA rating by independent financial rating agencies like CRISIL and ICRA. At the same time, ask for the last ten years’ repayment track record to ensure the safety of your investment. To avail large corpus in the long term, consider investing in five years fixed deposit with a cumulative option. It will give your investment compounding power of time and higher interest rate both.
Sukanya Samruddhi Yojna
For girl child, the central government has initiated a unique scheme, called Sukanya Samruddhi Yojana. The scheme is the boon for the parents of the girl child. You can invest regularly for 21 years for the benefit of your girl child. The investment amount is limited to Rs. 1.5 lacs every year. You can also avail the deduction under section 80 C of the income tax act. However, for the parents with relatively limited income options, the scheme may create liquidity issue, as your money is locked for long years and cannot be accessed in case of an emergency. Hence, it is advisable to open a separate fixed deposit account to attend an emergency in the family.
The child plans are basically insurance plans of parents’ life for the benefit of the child. You can avail such plans from various government or private insurance companies. In case of unfortunate demise of the parents, the child gets the amount of the sum assured. The balance premium is also waived off without loss of any policy benefits. There are many variants of child plans, that can give you periodic pay-out at regular intervals, to support the education-related expenses of your child.
Public Provident Fund(PPF)
The PPF account is all time favourite investment option for Indian investors. You can open PPF account for your child for the duration of 15 years. Till the child attains 18 years of age, the account shall be treated as a minor account. You cannot withdraw money till 18 years of age of your child. However, you can avail tax benefit under section 80 c in the form of deduction of income. Similar to Sukanya Samruddhi account, PPF lacks liquidity till maturity age of your child. Hence, you should invest carefully in child PPF and ensure enough liquidity by other investment options like a fixed deposit. You can also Calculate PF Balance through PF Calculator.
Equity Mutual Fund
Equity has the power to beat inflation in the long run. However, you should remain invested in the really long run of 10 to 15 years or more. In the short run, equity markets can generate the negative return as well. The factors like political uncertainty due to national elections or geopolitical tensions or war-like situations can create melt-down in the market. Hence, you should only invest a very small proportion of your income into equity mutual fund that you may not need in the near future. It is better to take the SIP route if you want to invest in equity mutual fund for your child.