- Date : 10/11/2021
- Read: 4 mins
Investing in your child's name can benefit you significantly. Read the article to know more.
Every parent wants to ensure a bright future for their child. Indeed, in a country where there are over 67,385 babies born every day, it is crucial to safeguard yours. So, how do you do that?
Well, you can invest in your child’s name!
Ideally, you will not liquidate this investment even during times of need because it is for your ward’s future. It can meet the kid’s education or other non-negotiable necessities. Having an investment outlay will enhance and maximise the upbringing you provide.
Benefits of investing in your child’s name
You become a financial planner the moment your child is born. The first thing that comes to your mind would be to impart good education to them. Obviously, high-end schools or colleges require ample funds. That is why some parents invest in their child’s name right from the start. But how is this helpful? Read on to find out.
1. Inculcates the saving habit
Growing up with an investment account will inculcate the saving habit in your kid, and they will understand the significance of money and saving. You can offer them incentives for investing money in their account - for example, the gifts they receive from relatives during festivals. These small financial handouts will add up to a considerable amount in 5-10 years.
Your child will also understand how savings can generate funds for future goals. Therefore, they will be disciplined in saving money rather than spending it all at once.
2. Saves on income tax
A taxpayer can open a PPF account in their child's name as a guardian. There may only be one account per child. If a parent maintains two PPF accounts, one in their name and one in his child's name, both accounts' maximum contribution and tax deduction under Section 80C is Rs 1.5 lakh. Because a PPF has EEE (Exempt-Exempt-Exempt) status, the interest is non-taxable.
You could also invest in the Sukanya Samriddhi Yojana for your daughter. This provides you with a tax-free return of 7.6% until the girl child attains the age of 21.
3. Gives you control over the money
As we saw, the funds will become the legal possession of your child when they turn 18. So, till they are adults, you will have control over the assets. This could be a driving force for making them better at investing and instil a willingness to commit. When they grow up with SIP deductions, they will maintain that discipline throughout their lives.
Financial discipline could become a habit that offers reasonable control over the money they are earning or have saved.
4. Allows better planning efficiency
Financial plans might seem hard to grasp. So, doing this in your child’s name will help them understand finances better. You can introduce your child to goal-based planning along with specific investment avenues. They will learn from your habits and practise the same diligently in their daily lives.
Once they turn 18, you cannot have any control over the account. However, their life’s major expenses and higher education will be sorted.
Investments you can look into
Safeguarding your child’s future can be beneficial, but there may not be too much in it for you. But then, being a parent is about selflessness. So, what are the financial products that you can buy in the name of your child? Here are some options:
- Sukanya Samriddhi Account
- Public Provident Fund
- Mutual funds
Investing in your child’s name is a very wise move. It will be beneficial in many ways for the child. You can easily invest in mutual funds or PPF depending on the equity. In some cases, opening a bank account will be the first step towards this investment redemption.
Before you start investing in your child’s name, bear in mind that Section 64 (1A) states that investment income in the child’s name will get clubbed along with the parent’s income. If it includes a minor's income, one can opt for exemption based on Section 10 (32).