How to invest for your children

It is the goal of every parent to give their kids a secure and pleasant life. In addition, they strive to give them a pleasant and secure future.

It is essential to start saving early in a society where costs and the price of school are increasing quickly.

You compound your earnings through investments. In addition to the fundamental plans, you might start your children with stock investments. There are a plethora of possibilities.

The majority of parents are aware of the need to save money for their children’s future, but they often do not completely understand what that corpus should be used for. Therefore, even if the parents are currently making enough money to sustain their home and cover the children’s current demands for education and other things, in the future that same amount may not be adequate.

Even though inflation may be on the decline, the average Indian household’s spending will continue to rise due to the high cost of products and services. For instance, the price of higher education alone is rising between 10% and 12% annually. An example would be the current average cost of an engineering degree, which ranges between Rs. 6 to Rs. 7 lakh for four years. This may rise to Rs. 12 lakh in a few years. To take this a step further, if you intend to send your child abroad for higher study, the amount you may have to spend is virtually limitless. Here are some factors to take into account while choosing the ideal savings strategy for your child:

1. Take into account multiple plans.
2. Take into account a plan that provides you with enough of a corpus for prospective educational fees, medical emergencies, and other incidental costs.
3. Consider the rising rates of inflation and the increased costs associated with this.
4. Make a note of your current income and consider whether you can use any of it to start a fund for your future children.
5. Take into account long-term plans that have guaranteed maturity amounts and minimal risk.

Let’s go through a few of the best investment plans to invest in 2023.

Bank Deposits: FD and RD

Parents in India have used a kid savings bank account, a classic banking investment, for many years. Until the child reaches the age of 18, the parents serve as guardians or trustees of the account.

Parents are permitted to deposit into this account, generating consistent and reliable returns. The only difference is that a child’s bank account might have withdrawal restrictions. It is frequently regarded as one of the best investment options for kids.

Fixed Deposits

Another investment instrument for young investors is fixed deposits. As a long-term investment for kids that offers security and significant returns, FDs might be a suitable choice to consider. They have little risk and provide an interest rate that is unaffected by market movements. A fixed deposit program is provided by almost all banks.

The refreshing aspect is that having a savings account with the bank does not make having an FD with them mandatory. For children, many banks provide unique FD programs. Most often, this does not have the option of an early withdrawal, and some even have insurance. You regularly make tiny investments with a fixed interest rate in an RD. The return, though, might be less than an FD.

Insurance Policies

There are child-specific insurance plans available. These frequently include life insurance and death benefits. The invested sum is compounded over time once the policyholder pays the regular premium. The payment is paid back in full when it reaches maturity. Major expenses like a wedding and education can be paid for with this.

Additionally, the insurance policies offer tax advantages. Several sections of the Income Tax Act of 1961 allow you to make deduction claims. Additionally, up to a specific sum, all gains, including the maturity amount and death benefits, are tax-free.

Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a government-backed scheme with a 15-year maturity period and higher interest rates compared to fixed deposits or savings accounts. It offers tax benefits as an Exempt-Exempt scheme, making it an ideal tool for long-term savings for long-term children due to its long lock-in period.

Mutual Funds

Mutual funds are risky yet high-returning investments that can be invested in lump-sum payments or through Systematic Investment Plans (SIPs). SIPs deduct a set amount from an account every month, which is then invested in a professionally managed mutual fund. Children’s mutual fund plans are often hybrid with varying equity and debt allocations, making them the best investment for kids.

There are several other ways to invest for your children. However, we have suggested a few options that might be helpful for you and your child’s future.

Bottom-line

Investing for your children is a meaningful endeavor that requires careful planning and consideration. By setting clear goals, choosing the right investment vehicles, and involving your children in the process, you can build a solid financial foundation for their future. Remember that the earlier you start, the more time your investments have to grow, leading to greater financial security for your children as they reach adulthood. Whether it’s for education, a home, or simply giving them a head start, every bit of planning and investment counts toward a brighter future.

Start your investment journey today, and empower your children to make informed financial decisions in their lives!