From study to choosing a desirable career to
marriage, upbringing a child is a huge task, which, apart from care, also needs
money. As the rate of inflation in education is more than the rate general
inflation, you need to chalk out a financial plan to meet the expenses. There
are many financial products available, which you may use judiciously to meet
your financial targets. There are also some exclusive financial products
available for girl child that the government launched as a part of its ‘Beti
Bachao Beti Padhao’ campaign.
Sukanya Samriddhi Yojana
Small deposit scheme Sukanya Samriddhi Yojana
(SSY) is aimed at meeting the expenses of higher education and marriage of your
daughter. The parents or legal guardians of a girl child may open an account
till 10 years of the age of the girl. The account may be closed after 21 years.
However, normal premature closure is allowed after completion of 18 years,
provided that girl gets married.
Currently, the maximum amount may be invested
in an SSY in a financial year is Rs 1,50,000. The amount invested is eligible
for tax deductions u/s 80C as well as the interests earned and the maturity
amounts are also tax free.
The government declares the rate of interest
for SSY accounts on quarterly basis and generally keeps it higher than other
small savings schemes like NSC, KVP, PPF etc. At present, the rate is 8.5 per
cent, which if continues to remain same, would generate a corpus of Rs
74,96,802 at the end of 21 years, if Rs 1,50,000 is invested at the beginning
of every year for 15 years.
Sukanya Samridhhi Yojona is a very suitable
product for girl child, as it is tailor made for them. It also provides
handsome rate of return and overall tax benefits. However, the long tenure and
restrictions on withdrawals make it an illiquid investment.
Bank Fixed Deposits
For investing in fixed deposits (FDs) you
need to have lump sum money in your hand. FDs are one of the most popular
choices in India. Most people invest in FDs because they are easy to get from
the banks that have created immense trust in the mind of the account holders.
However, FDs don’t provide protection against inflation and the interest earned
are also taxable.
With highest interest rates on FDs varying
between 6 and 7 per cent apart from tax and inflation inefficiency, FDs may not
create enough wealth that is needed for your daughter’s higher education and
marriage purpose. So, you may use FDs only to park small amount of excess money
to meet the associated expenses.
Recurring Deposits
Although, recurring deposits (RDs) are a
modified version of FDs, where you may invest periodically on small amount
instead of lump sum one, but it is a better option to park the small amount of
money that you may save every month. As it may not be convenient for you to
save large amount in FD regularly, the small amounts in vested in RD may come
handy when you need some lump sum money for expenditure. However, like FDs, RDs
are also tax and inflation inefficient.
Public Provident Fund (PPF)
It is a good idea to open a PPF account in
the name of your girl child and divide the money you want to invest in it
between your and your daughter’s account (maximum Rs 1,50,000 may be invested
by a PAN card holder, be it in one account or more accounts). However, it would
be even better if you open an SSY account for your daughter instead of
bifurcating your investment for retirement. Otherwise, with tax deductions on
investment and tax-free interest and maturity, along with pretty good interest
rate, PPF is a good vehicle for accumulating a corpus.
Mutual Fund (MF)
As the goal of higher education and marriage
of your daughter are a long-term goal, you may start SIPs in equity mutual
funds safely to get a return that beats the inflation. But you should not get
panicked by daily turmoil in markets, which affect the NAVs of mutual funds in
short term. Start monitoring the NAVs of the funds a year before your daughter
is about to get admission for higher education or about to get married, so that
you may redeem you funds at good value. There are also some child specific
funds available with longer lock-in period and higher exit loads if redeemed
before the duration for which the fund is taken to discourage early withdrawal
of money for any other purpose than meeting the needs of the child.
Insurance
There are many child insurance products
available in the market in the form of money back plans or regular plans. One
of the important feature of child insurance is the premium waiver benefit
(PWB), which allows the insurance to continue even without paying premium in
case of untimely demise of the earning member, who used to pay the premium.
However, there is no point in taking insurance on child’s life, as it is not
the motive of child insurance to get lump sum money in case of death of the
insured child. So, it’s better to take insurance on your life, making daughter
the nominee.
So, along with other investments, better to
take a term insurance plan. Otherwise, even a unit-linked insurance plan (ULIP)
would be a good option. There are, however, options available to take PWB in
some endowment plans even on your life, which also provide additional risk
covers like instant payout of sum assured (SA) along with yearly payout of
certain percentage of SA apart from the maturity benefits, if taken judiciously
with term rider, accidental rider, PWB etc. For example, in case of a 20-year
policy of Rs 10 lakh SA, taken with all the riders, if the insured person dies
due to accident in the very first year, total payout would be as much as 6
times the SA, that is Rs 60 lakh. Such plans may prove even better than term
plans because the nominee would get immediate lump sum payment to clear debts,
if any, and to make some investments, then regular yearly payments to bear
child’s expenses and finally, lump sum payment again on maturity to meet
expenses for higher education and marriage. In case the life insured survives
the full policy term, he or she will get lump sum maturity benefit, which,
along with bonus, would be around twice the SA, that is around Rs 20 lakh. But
such plans are expensive due to high risk cover.
