Providing for their children is the primary responsibilities of parents. From this perspective, it is essential that we know how best we can ensure that, at least financially, our children do not have to suffer from hardships and scarcity that we might have undergone.
Now the best thing we can do to provide for our children is to secure our own financial future. Without that, everything else is rather pointless. But assuming that you are financially secure yourselves, here are some of the ways to invest and build a secure future for your children.
1. PPF (Public Provident Fund)
One of the most popular investment options for children and young people anywhere, and for good reason too. Providing a tax rebate for the investor (parent), tax-free interest throughout the compulsory 15-year investment period, and exempt at the time of withdrawal as well, the PPF is an excellent way to save and provide a corpus for your child. The 15-year lock-in period means that if you start investing when the child is four or five years old, it will mature when s/he is 20, just the right time when you need funds for their higher education. The interest rate tends to be slightly higher than ordinary Bank FD’s, and as mentioned before, is tax-free. There is an upper limit of Rs 1,50,000 per year for PPF investments presently. This is subject to change from time to time.
2. Invest in Mutual Funds
It is advisable to also set aside some portion of your investible income for participation in the stock market. In the long term, this is the investment mode that is likely to yield the highest returns. Invest in a good long-term equity fund through the SIP route (amount can be as low as Rs 500 per month, with no upper limit) and over a period of five years or more, the returns will typically exceed those of a PPF or FD’s. Also, under present tax laws, any Capital Gain on Mutual Funds held for more than one year is tax-free.
3. Sukanya Samruddhi Scheme
Similar to the PPF in many ways, this scheme is meant for saving for girl children. The period of deposit is 14 years and maturity of the investment is 21 years after first deposit. However partial withdrawals are permitted after the child attains 18 years of age. Interest rates are again higher than conventional FD’s and the same tax benefits are PPF are available.
Whether a boy or girl, every parent aspires to one day hold a grand wedding for him or her. And that means buying and gifting of gold. Even otherwise, gold is a wise hedging investment, and upto 10% of any investment portfolio may be invested in it. An excellent way to invest in gold over a gradual, long period, is to opt for Gold ETF’s (a type of mutual fund that invests in gold) in the form of SIP’s. By setting aside a monthly amount, pegged to the price of gold, you can ensure that you have ample funds to meet your needs when the time comes.
5. Insure yourself
Another measure that can be taken – though not strictly an investment on behalf of the child – is for the parents to insure themselves. The one thing that can seriously damage a child’s entire future is a mishap happening to their parents. Keep in mind the amount that would be needed to cover the expenses of the child’s education and wedding, as well as your own medical expenses, and ensure that you have a Life policy (preferably a Term Insurance) that covers this entire amount.
6. Short-term debt investments
While long-term goals are best planned for using the measures outlined above, for the short term, ie. Recurring expenses like school fees, tuitions etc, keeping a certain amount of funds in debt mutual funds or Bank RD/FD’s with planned maturity is advisable, so that sudden fee hikes etc. do not take you by surprise, and neither do you have to compromise significantly on day-to-day expenses to pay this amounts
And last but not least, the unconventional – yes, one of the best ways to ensure a bright future for your child is to invest in his education. And this means not just academics, but sports, arts and music as well. Let him or her have access to a broad spectrum of interests and enjoy childhood. An intelligent child, brought up in a supportive environment, is likely to be the happiest – and that is what all this effort is ultimately for!