What Is The Best Way To Invest Small Amounts Every Month For Your Daughter?

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    If you are a father of a daughter and plan to build a corpus for her by investing small amounts every month, there are many options. If you start early you are able to get the benefit of compounding which may be very handy and useful to build a solid corpus.

    What Is The Best Way To Invest Small Amounts Every Month For Your Daughter?
    Let's see the various options by which you could build a corpus for your daughter.
     

    1) SIPs in a mutual fund scheme

    Let's assume that you have a daughter of around 1-10 years and want to invest in a Systematic Investment Plan (SIP) for a period of 10-20 years. If you look at the returns of the mutual fund schemes in the same period you would realize that some if the biggest funds have generated a solid return during the period.

    In fact, the returns are the best as compared to many asset classes, particularly bank deposits.

    Name  of the fund  10 year returns 20 year returns 
     HDFC Equity  17%  20%
     Reliance Equity  20.70%  NA
     ICICI Prudential Value  19.74%  NA
     Birla Sun Life Frontline Equity  17.7%  NA

    As can be seen from the above table the returns from mutual funds, even if you invest a lump sum you can get a sizeable corpus, though SIP would be a more prudent route.

    Read Benefits of investing in SIPs

    Sukanya Samriddhi

    The Sukanya Samriddhi is designed especially for the girl child and was launched earlier this year. There are several advantages of placing money in this account. The following are the advantages:

    1) Amount earned is tax free. So, interest earned is not added to total income for payment of tax.

    2) One gets benefits under Sec 80C of the Income Tax Act.

    3) Current interest rate of 9.20 per cent easily beats bank rate of interest.

    To know here and how to open the Sukanya Samriddhi account click

    There are some disadvantages of the Sukanya Samriddhi including the fact that there is a lock-in period. So, you cannot withdraw the amount during an emergency. The other disadvantage is that you can open a maximum of only two accounts. So, if you have three daughters it is currently a problem. Another problem is that there is no online facility at the moment and the interest is not fixed.

     

    To know all the disadvantages of Sukanya Samridhi click here

    Pubic Provident Fund

    The Public Provident Fund or PPF is another excellent option that you could consider for your daughter. Like the Sukanya Samriddhi the interest earned is tax free as well as the fact that it qualifies for tax rebate under Sec 80C of the Income Tax Act.

    However, there is a lock-in period that is applicable and the minimum amount is restricted to Rs 1.5 lakhs per year.

    The PPF is also safe as it is backed by the government of India.

    Apart from this there are many other ways to invest and build a corpus including shares. But dabbling in shares without having the knowledge could be a risky proposition. You should seek the help of experts or use the mutual fund route as suggested above. Bank deposits are also a good bet, but, they are neither tax free nor offer Sec 80C benefits. Also, you maybe tempted to withdraw the money early.

    GoodReturns.in

    Story first published: Friday, September 18, 2015, 9:17 [IST]
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