Every parent would wish to provide their child with the best life ever, particularly in terms of education and marriage. However, as the expenses increase, casual saving is no longer sufficient. You require an intelligent, long-term plan. Enter a child savings plan, which is meant to give your child a safe financial future, one step at a time.
Why You Need a Child Savings Plan?
Higher education both in India and abroad is becoming expensive each year. Add the huge costs associated with major events like marriage, and the figures are overwhelming. A child savings plan prevents you from having to borrow or raid your retirement savings. It enables you to save consistently and increase your savings as time goes by, and when the time comes, you are financially prepared.
Different Types of Child Savings Plans
Below are some popular child savings plan options available in India. Each of them offers a mix of flexibility, security, tax benefits, and long-term value:
1. Public Provident Fund (PPF)
A government-backed saving option, PPF, is a safe and tax-saving tool. It also has a 15-year lock-in and is ideal to use in long-term objectives like a child’s college education. With compound interest, you can invest as low as ₹500 per year and still accumulate a large corpus. Investments in PPF qualify for tax deductions under Section 80C. The maturity amount is tax-free under the EEE (Exempt-Exempt-Exempt) category.
2. Sukanya Samriddhi Yojana (SSY)
This plan is specifically designed for girl children to provide one of the best interest rates among small savings schemes. You can open an SSY account before your daughter turns 10. The account matures 21 years from the date of opening. Partial withdrawals are allowed after she turns 18, which is ideal for higher education or marriage. Contributions also qualify for deductions under Section 80C, and the maturity amount is tax-free.
3. Child ULIP (Unit Linked Insurance Plan)
It is a combination of investment and insurance. The premium is partly used to provide life cover. The remaining is invested in market-linked instruments. Such plans usually offer a “waiver of premium” benefit, in case the parent passes away or suffers a critical illness. Future premiums are waived, and the policy continues to provide benefits. The investment returns are market-linked. Certain ULIPs may offer tax benefits under Section 80C and Section 10(10D), subject to prevailing norms.
4. Child Education Plans by Insurance Companies
These plans are education-oriented. They frequently offer guaranteed payouts at certain milestones, such as 18 years old for college or 21 years old for post-graduation. Some plans also include bonuses and riders to enhance protection.
5. Mutual Funds via SIP (Systematic Investment Plan)
Though not specifically labelled as child savings plans, mutual funds via SIPs can effectively help build a child’s future corpus. By investing regularly in diversified equity mutual funds, you can benefit from the power of compounding. SIPs offer flexibility, and with proper asset allocation. So, the funds can be tailored to meet major financial milestones like higher education or marriage. They do not provide tax benefits like PPF or SSY. But ELSS (Equity Linked Saving Schemes) offer Section 80C benefits with a 3-year lock-in.
Conclusion
Planning for the future needs to be done. A child savings plan makes you secure about the future. That’s because you know that money will never hold back your child. Start small, but start early.
When you select the correct child savings plan, you’re not only investing in money but also in the confidence, future, and dreams of your child.