Some options to help you build a corpus for your child
There are various investment options to secure the future of your child. There are assured returns plans as well as market-linked plans. It is not necessary to have a special investment plan for your children. Any capitalbuilding method would do. You should start investing early and regularly.
Public Provident Fund
The Public Provident Fund (PPF) scheme of the post office is a time-tested and secure option. The scheme provides fixed returns along with tax benefits. However, you can invest only up to Rs 70,000 a year.
Systematic investment plan
Another good option is to start a systematic investment plan (SIP) in a mutual fund scheme at the earliest. SIPs will allow you to invest as little as Rs 500 every month in a mutual fund scheme. You can pick a diversified equity fund or a balanced fund.
A SIP route spreads out the investments over a period of time. This tends to average out the costs of acquisition of units. Equity beats all other asset classes when it comes to returns in the long run. However, if you are not open to taking a higher risk, you can choose a balanced fund.
A balanced fund invests around 40-60 percent of its corpus in equity and the rest in debt instruments. This means a part of your corpus is invested in lowrisk instruments such as bonds. It is necessary to have the discipline to make regular investments. Also, one should desist from withdrawing money from the corpus as these are open ended funds.
Mutual fund plans for children
Children's plans from mutual funds are more or less like balanced funds. Their track record is good - most of them have been returning around 15 percent per year. This makes these schemes ideal for parents who cannot follow a disciplined investment plan. The schemes give you the option of opening a SIP for a small amount and investing till the child grows up.
Mutual funds offer market-related returns. The investments are risky. However, as the time period is long, good returns can be expected.
Insurance plans
Then there are insurance plans. Ideally, a parent should buy the insurance cover on his own life. One should opt for the premium waiver benefit, which allows the policy to continue without premium on the death of the parent. The parents should secure their lives so that the family gets the security in case of unfortunate demise of the earning parents.
There are also policies which will start paying lumpsums at regular intervals once the child attains the age of 18. This is good because you can use the money for higher education.
Fixed deposits
In a bank's fixed deposit saving scheme, a certain sum of money is deposited with the bank for a specified time period, with a fixed rate of interest. When you want to invest your hardearned money for a longer period of time and get a regular income, a fixed deposit scheme is ideal. It offers liquidity and good returns. A loan or overdraft facility is available against bank fixed deposits.
There is also the option of recurring deposits. In this scheme, the investor invests a specific amount in a bank on a monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which you get your principal sum as well as the interest earned during that period.
A recurring deposit makes you invest compulsorily, at a high rate of interest, and offers liquidity.
