While the best way as often suggested has always been in child plans offered by Mutual funds, they might not necessarily offer you optimum returns.
The traditional products
In a survey done by a leading financial portal recently, many investor responded by saying they invest in PPF and post office schemes for long term returns for their children. While these are extremely secure instruments they may not be the best when it comes to returns. Of course, PPF will also make it extremely tax efficient thereby enhancing your returns as well. While it maybe prudent to park some money in PPF, it would not be prudent to park 100% of your money, simply because consumer price inflation is hovering around 9 per cent and these deposits offer you less then 9 per cent returns, which means you have negative rate of returns.
The ideal way out
The best way perhaps would be to balance it between safe products and slightly risky instruments like equity mutual funds. Many equity mutual funds have beaten Sensex and Nifty by a wide margin. Read some of them here
For example, the SBI FMCG fund has generated a return of almost 37 per cent in one year. By investing in mutual funds, you are likely to get superior returns, when compared to banks or post office deposits. However, you must keep in mind that to generate returns over the longer period for your child, you would have to deploy money over the long term, like say 10-years, 15 years and so on.
On in all, a balance between equity investing instruments and traditional products is likely to yield the best results.