Here are some excellent investment options, which are free from risk. We have ignored risky instruments like equity mutual funds, since we do not know what would happen 15-18 years down the line. There is no point in jeopardizing the education of a child.
Public Provident Fund
If you are a disciplined investor this should be your first investment option and that too for various reasons. First, is because PPF is among the very few instruments in the country that give you a double tax advantage. First, when you invest up to Rs 1.5 lakh a year, you get tax exemption under Sec 80C.
The second is that when you receive the proceeds after 15 years, there is no tax on the interest earned. Moreover, the 15-year term of the PPF is ideal to build a solid corpus for your child's education.
In the Union Budget 2014, Finance Minister Arun Jaitley hiked the amount one can invest in PPF from Rs 1 lakh to Rs 1.5 lakh. Though there is a partial withdrawal facility after seven years, make sure you do now withdraw and adopt a disciplined approach to investing.
Look at a guaranteed money back insurance plan
There are many products that guarantee a money back plan. Take a look at IDBI Federal Life's Incomesurance. This product scores on every count. For example, it provides a guaranteed return and money is invested in government securities. Interestingly, you get dual tax benefits. The instruments gives you tax free income and also the amount invested qualifies for tax rebate under Sc 80C of the Income Tax Act.
In addition, you also get insurance to the tune of 10 times the premium paid. This is a win-win situation for investors. Look at longer term tenures and choose tenures that match your needs.
Take a term insurance plan
Take a term insurance plan, that would benefit your child, in the unfortunate event of your death. This would help take care of your child's education and other needs several years down the line.
Why not to choose risky plans linked to equities?
There are scores of other schemes particularly ones which have exposure to equities from mutual fund schemes. While these could offer you higher returns in the long term, there is no guarantee that you would come back with returns. Hence, it is best to avoid such schemes, and go for the ones that are more secure.
While there are many options that one can choose from, remember, that you must also look at tax breaks and also safety. On this count products like PPF and IDBI Federal Life's Incomesurance are good products. Both are safe, guarantee returns and also come with tax breaks.