If you are looking at a 10-15 year investment plan for your child, there are plenty of options. It is best to start investing very early for your child. This ensures that your returns can get compounded and you reap the benefits of compounding.
While there are many ULIPs, that offer you good protection, the returns are not good. The one benefit that you get is insurance, in case anything were to happen to the earning parent, it could cover the child's education etc. But, a better option would be to take a term insurance plan, which would give you insurance and a good investment plan as mentioned below. This is a much better option, than the traditional ULIPs.
1. Public Provident Fund
If you wish to build a corpus for your child's education or future, one of the ways is to invest in the Public Provident Fund. The interest earned through this investment is tax free, apart from this you get a tax benefit under Sec 80C. The third and the biggest advantage of the PPF is the fact that the interest is way higher than bank deposits.
Government owned bank deposits, currently offer you an interest rate of 6 to 6.50 per cent, while the PPF offers you an interest rate of 7.9 per cent, which is very good under the present circumstances.
Unlike earlier, where the PPF could be only opened at the post office, now banks too help you in opening a PPF account. However, one needs to note that the maximum permissible limit currently is Rs 1.5 lakhs per year. This should be good enough to build a sold corpus in 15 years time, with tax free income.
2. Sukanya Samriddhi Account
If you have a girl child at home, one of the best options would be to invest in the Sukanya Samriddhi Account. There is no debt yielding instrument right now that offers you an interest rate of 8.40 per cent with income that is tax free.
Of course, equity mutual fund and shares can offer you that returns, but, there is an element of risk. Here your returns are very assured. Investors also get tax benefit under SEC80 C of the income tax act.
There are a few important things that investors should not. The first is that the account must be opened before the girl child attains 10 years of age. On the other hand, partial withdrawals are allowed only on the girl child attaining 18 years and the account can be closed on attaining an age of 21 years. There is no better investment scheme for the girl child at the moment that offers assured returns.
3. Equity Mutual Funds
Let's warn our readers that equity mutual funds do not provide assured returns. However, in the past many years they have beaten most asset class by a distance. There are many equity mutual funds that you can invest, as a part of the child investment plans. Many of these have ratings from Crisil and Value Research Online.
For example, Axis Long Term Equity Fund is a fund that has given solid returns over the last many years. The 1-year returns has been a solid 21.33 per cent, whereas the three year returns has been 17.56 and the 10-year returns has been 17.50 per cent.
The one good thing about these funds is that there is no lock-in and they can be easily bought and sold, in case you need money to fund your child's education. There are many such well rated mutual funds, which one can consider. We wish to inform readers once again that the returns are uncertain, and therefore, if you do not wish to take risk, do not invest in these instruments.
4. GSEC Funds
G Sec Funds are mutual funds that invest their money in government securities. It's important to note that these are safe instruments, as money is invested in government securities. The returns over a 1 to 10-year period have been very good.
For example, the IDFC G Sec Fund - Investment Plan - Regular Plan has given an annualized returns of 9.20 per cent over a 10-year period. The SBI Magnum Gilt fund too has given a similar return of 9.20 per cent over 10 years.
Some of these fund have also given very good returns over the short term as well. The Nippon India Gilt Securities Fund for example, has given 10.31 per cent in two years and annualized returns of 12.41 per cent in 1 year. These instruments are very safe and investors have nothing to fear.
Gold has given a returns of a solid 22 per cent in the last one year alone. If you are looking at a 10-15 year perspective to build a corpus for your child, one can invest in open ended Gold ETF schemes. These can be bought and sold through the stock exchanges, just like you buy and sell shares. Gold ETFs track gold prices and are in the electronic form and hence can never be stolen. You also do not need a bank locker, as you need for physical gold.
There is just a small negligible brokerage charge of around 0.50 per cent, when you buy and sell. What's most important is that Gold ETFs track gold prices and hence your returns are linked to gold. Over the long-term gold returns have beaten some asset classes, which makes them an attractive bet.
An important thing to note in some of the recommendations listed above is that in the case of the first too, that is PPF and Sukanya Samriddhi the returns are almost assured and hence the investment are safe. The other three instruments that are recommended pose some degree of risk, especially equity mutual funds. Gold and GSEC Fund are comparatively less risky. It is therefore very important to exercise some degree of caution before investing. Investors who are risk averse should go with the PPF and Sunkanya Samriddhi. As mentioned earlier, we wish to emphasize once again, that investing for children should be a long-term exercise and is more of a patient game. it's important also to take a term insurance, to secure the future of your loved ones.