Children’s Day and investment instruments: Parents often focus on providing a secure future for their children. It is essential to make wise investments to achieve financial stability as you age. While navigating the world of finance can seem intimidating, applying a systematic and disciplined approach can lead to significant wealth accumulation for individuals.

Sukanya Samriddhi Yojana

If you have a girl child, Sukanya Samriddhi Yojana (SSY) is a safe investment option that offers assured returns. It also comes with the benefit of the EEE (exempt-exempt-exempt) tax regime, ensuring that earnings on maturity are completely tax-free. Sukanya Samriddhi Yojana (SSY) accounts offer an impressive compound interest rate of 8.2% per annum for the quarter from 1 July 2024 to 30 September 2024. The interest rate on SSY accounts is reviewed and updated every quarter, making one of the most competitive rates available among small savings schemes.

For those with a 5-year-old daughter, investing Rs 1.2 lakh annually (equivalent to Rs 10,000 per month) at an interest rate of 8.2% per annum can lead to an estimated maturity amount of around 55.61 Rs lakh in Sukanya Samridhi Yojana after 21 years. The total amount invested would be Rs 17.93 lakhs with the interest earned over the period of 21 years amounting to Rs 37.68 lakhs.

If the investment amount increases to Rs 150,000, the maturity amount is expected to reach Rs 69.8 lakh, the interest earned totaling Rs 47.3 lakh and the initial investment reaching Rs 22.5 lakh.

NPS Vatsalya Fund

For parents who want to secure their child’s financial future beyond education, the National Pension System (NPS)-Vatsalya can be a suitable solution. This scheme allows parents to invest on behalf of their children till they turn 18 with the aim of building a corpus for their long-term needs. Like standard NPS accounts, PFRDA also oversees this scheme.

As with regular NPS accounts, parents have the flexibility to choose from a variety of pension fund managers and opt for active or auto investment options. The maximum allocation to equities, a potentially high-yielding but risky asset class, is capped at 75%.

Parents have the option to start investing in the NPS Vatsalya scheme with a minimum monthly contribution of Rs 1,000 with no maximum limit. The account will be under their management until the child turns 18, after which the ownership of the account will be transferred to the child. The interest rate for the scheme has recently fluctuated between 9.5% and 10%.

Specific mutual funds

Child mutual funds are specialized investment schemes designed to help parents save for their children’s future needs such as education, marriage and general welfare. These funds prioritize ensuring that children’s education expenses are covered, even as costs rise over time. Some plans also offer lump sum payments when the child reaches a certain age, which can help parents meet tuition and related expenses.

The ICICI Prudential Smart Life Plan offers a lump sum at the child’s reference age for education in addition to the life insurance cover.

HDFC Life YoungStar Udaan helps parents build a fund for their child’s future education while also providing financial protection.

Public Insurance Fund (PPF)

The PPF scheme, a long-term investment option backed by the government, aims to promote savings and wealth growth for individuals. It offers investors an attractive interest rate and promising returns on their investments over time.

One of the main advantages of the PPF scheme is that the interest earned and profits accrued are not subject to taxation as per the income tax laws of the country. This makes it a tax-efficient investment choice for people looking to secure their financial future.

With a minimum tenure of 15 years, the PPF scheme can be extended in blocks of 5 years as the investor wishes. Investment limits for PPF allow a minimum investment of Rs 500 and a maximum investment of Rs 1.5 lakh per financial year. Investors have the flexibility to invest in a lump sum or in up to 12 installments throughout the year.

Fixed bank deposits

Parents have the option to open a Fixed Deposit (FD) for their children, naming themselves or their partner as guardians. Some banks offer specialized child-friendly FD schemes that can offer higher returns on investment. Examples of child-specific FD schemes introduced by Indian banks include PNB Balika Shiksha Scheme, PNB Uttam Non-Callable Term Deposit Scheme, Yes Bank Fixed Deposit for Child and SBI FD for Child.

Bajaj Finance Fixed Deposits offer a wide range of tenure options from 12 to 60 months, giving investors the flexibility to align their investment tenure with their financial goals for their child. This allows investors to match the FD tenure with specific milestones, such as college admissions, to effectively plan for the future. Senior citizens also benefit from a higher interest rate of up to 8.65% per annum, making it an ideal choice for grandparents who want to contribute to their grandchild’s future.

Savings plans for children

Children’s savings plans are designed to facilitate long-term wealth accumulation. These plans offer the benefit of both investment growth (equity, debt or hybrid funds) and life insurance, allowing parents to build a substantial fund for their child’s future. Max Life Online Savings Plan — Option 2 emphasizes high growth potential by focusing on capital funds to help establish a financial foundation for your child’s education or other future needs. Bajaj Allianz Life Smart Wealth Goal V — Child Wealth focuses on mid-cap equity funds that have the potential to generate higher returns over a long period.