Saving for children should be a priority, particularly in today’s times of high inflation and soaring costs. Consider a scenario where a couple starts saving some money for their child’s higher education and healthcare needs. They save approximately Rs. 2 lakh per year and do this for 10 years. However, despite compounding, the final corpus still falls short of meeting the child’s aspirations of studying at a premier institution due to education inflation, which often exceeds general inflation rates. Healthcare costs have also witnessed a steep rise over the decade.
Sounds like a familiar situation that you’re dreading? You’re not the only one; rising inflation is affecting savings for children and also leading to compromises in terms of their final educational and developmental choices, not to mention the impact on overall well-being. Rising healthcare costs are also a matter of concern, particularly for parents who worry about what will happen to their children when they are not around. This is where strategic investments can help cover inflationary risks, while life insurance coverage also makes a difference. Let’s learn more about these aspects below.
Investments Worth Considering
There are several investments worth considering when it comes to saving for children. Some of them are detailed below for your perusal. Bear in mind that the right combination of all these investments will help you secure your child’s financial future.
- Child Plans- You will find dedicated child plans from several reputed life insurance companies. These policies offer decent life coverage for the parent, along with the ability to make strategic investments for earning compounded returns. In case the parents unfortunately pass away, the child will be financially secured through a lump sum and waiver of future premiums. The corpus can also be partially withdrawn at strategic intervals, thereby helping meet educational and other costs periodically.
- Sukanya Samriddhi Yojana- This is a Government supported scheme for girl children with an attractive interest rate. The interest is compounded on an annual basis, while the plan also comes with decent tax benefits in turn. The maximum deposit is Rs. 1.5 lakh annually, and the account will mature 21 years from the date of opening. However, withdrawals of up to 50% of the balance are permitted when the girl turns 18, provided the funds are used for education.
- PPF (Public Provident Fund)- PPF is a Government-backed scheme that offers attractive tax benefits and exemptions on the maturity amount. The interest rate is revised quarterly and has historically ranged between 7-8% per annum. There is a lock-in period of 15 years, though partial withdrawals are allowed from the 7th financial year onwards. The maximum deposit here is Rs. 1.5 lakh per year, and you can expect to amass a sizable corpus for your child in the future.
- National Savings Certificates (NSC)- National Savings Certificates (NSCs) are also supported by the Government and come with an attractive rate of interest. The returns are guaranteed for the investment tenure, while annual compounding ensures steady growth. However, NSC has a fixed lock-in period of 5 years. Premature withdrawal is only allowed in exceptional cases, such as the death of the certificate holder or a court order.
There are several other investment options like SIPs, ULIPs, and fixed deposits. It is important to have sizable life coverage that financially protects your child in your absence. Choose the coverage amount wisely, making sure that it is at least 10-15 times your annual income to account for inflation. At the same time, you can diversify your portfolio to keep your other goals on track.