PPF
The Public Provident Fund (PPF) account can be opened with a bank or post office and has a lock in of 15 years. Interest is typically higher than normal FD rates and interest received is tax free for the investor. The account can be renewed for blocks of 5 years.
Sukanya Samriddhi Yojana
This scheme helps build a corpus for a girl child and matures on completion of 21 years from the date of opening the account. Deposits can be made up to Rs 1.5 lakh a year till completion of 14 years from date of opening the account. Interest is higher than FD interest rates.
Mutual funds
One can invest in long term equity funds. There are specific plans for children that have a dynamic asset allocation to equity and debt. Since investments are made in equities, returns from such investments tend to beat the rate of inflation and enjoy liquidity benefits as well.
Life insurance products
There are various traditional schemes as well as Ulips for children that aim to provide for their higher education needs. On death of the life insured during policy term, provided the policy is in force, death benefit is immediately payable and no further premiums are payable till maturity of policy. Full maturity benefits shall be paid out at the time of maturity.
Points to note
One needs to review the investments on an annual basis to ensure that the investments are performing as envisaged and to ascertain if any course correction is required.
An experienced and SEBI registered investment advisor can help the parents with the right products and investment strategy for creating a corpus for children.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
