- Date : 24/01/2018
- Read: 5 mins
Your daughter is your pride. So, why not invest for her and give her a chance to be proud of you?
The joy of raising a daughter is the biggest joy of a parent’s life. However, it’s also a huge responsibility.
You probably want your daughter to become a doctor, pilot, or scientist. But to make that happen, she’ll need a strong financial support to pursue her chosen field. In addition to financing her education, you would also like to save for her wedding.
So, here are some investment options that can help you secure your daughter’s future:
1. Sukanya Samriddhi Yojana (SSY) Account
Launched by Prime Minister Narendra Modi under the ‘Beti Bachao, Beti Padhao’’ campaign, this scheme aims to help girls get financial support from their parents. Given the long-term nature of this scheme, you can build a substantial corpus to meet the costs of higher education and wedding.
This account requires you to deposit a minimum of Rs. 1000 and a maximum of Rs. 1.5 lakhs per year. You’ll keep getting interest of 8.1% and the account will mature when your daughter turns 21.
However, make note of the following things before you proceed:
- The account must be opened before your daughter turns 11.
- You’ll be required to pay for this scheme for only 14 years starting from the day you opened it.
- You can claim a tax deduction under Section 80C of the Income Tax Act for the entire amount deposited during a financial year.
- The interest received and the amount at maturity are totally tax-free.
- On maturity, the amount will be paid directly to your daughter.
- If you don’t close the account when your daughter turns 21 and don’t withdraw any money, it will continue to earn interest.
- SSY accounts can be opened at authorised banks and the Post Office
Some changes made by the government recently has made it easier for you to open an SSY account:
- If you have adopted a girl, you can now open an SSY account for her.
- You can deposit money online.
- You may withdraw half amount when your daughter passes 10th standard or turns 18.
- You withdraw the entire amount when she turns 18.
- You can transfer SSY accounts from one post-office to another for free. Transferring the account from post-office to banks will attract some charges.
2. Child Plans
Child plans will give your daughter a guaranteed lump sum amount, in case of your demise. A major benefit of a child plan is that you can withdraw partial amount when you need it to pay for your daughter’s college fees or her wedding.
A typical child plan comes in two types – moneyback and endowment plans. Moneyback plans will provide your daughter with parts of the sum insured on regular intervals like her 12th, 18th or 21st birthday. On the other hand, endowment plans will provide her with a one-time payout after a certain period of time.
You can also go for market-linked child plans. It works like any other Unit-Linked Insurance Plan (ULIPs) – you can allocate assets based on your risk-appetite and financial goals.
If you can afford it, have separate policies for each of your daughters. This will ensure their education and other major expenses are covered in the event of your or your spouse’s untimely demise.
3. Systematic Investment Plans (SIPs)
Here’s one more option for you invest small amounts regularly over a long-term and build a large corpus for your daughter. In the event you receive a windfall, invest a portion of it in the funds earmarked for your daughter.
When you begin saving early, the potential for long-term wealth creation rises manifold. And if you intend to save for your daughter’s education and marriage, equity mutual funds provide a tax efficient method of doing so. However, as with any investment instrument, there are risks attached.
The ideal strategy to follow is, to begin with, equity funds and shift to safer funds as your child approaches adulthood. As your daughter approaches adulthood, shift the accumulated corpus into a debt fund. These funds are the most risk-averse amongst mutual funds, offering returns better than savings account deposits, and usually beat the rate of inflation. The real value of the corpus saved, therefore, does not devalue in time. Additionally, these are also tax-free after a minimum period of being continuously vested.
4. Public Provident Fund (PPF)
Given the extended time horizon of the investment in your daughter’s future, you will be able to build a healthy corpus with a PPF. The current interest rate of 7.9% far exceeds the interest rate paid on your savings account. The interest earned is also free of tax.
Additionally, you are eligible for a tax rebate under Section 80C of the Income Tax Act for savings up to Rs 1.5 lakhs. The only disadvantage is the extended lock-in period. However, that also provides the financial discipline needed to help build a corpus for your daughter.
This is about your daughter - her dreams, her hopes and her future. And she looks up to you – her parent – to make all her dreams come true. One way to do that is to create a fool-proof financial plan as early as possible.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or insurance or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.