Saving money for your kids warrants financial discipline and finding the best investment avenues that provide decent returns. This will ensure that over the next 15-20 years, you will accrue a corpus that is enough to fund your child’s education, along with covering expenses related to their extracurricular activities and medical expenses. While searching for the best investment options, you will also come across government-led programs which guarantee consistent and relatively risk-free returns.
Let us now examine a few investment options, including gold investments, mutual funds, and relatively safe options such as fixed deposit.
1. Government-led investments
- Sukanya Samriddhi Yojana (SSY): This government scheme is exclusively for the girl child, offering attractive interest rates and tax benefits. It can be opened for a girl under 10 years old and matures when she reaches 21.
- Public Provident Fund (PPF): A long-term savings option with a 15-year lock-in period, PPF offers tax-deductible contributions, tax-free interest, and a tax-free maturity amount. It's a safe and reliable way to build a substantial corpus for your child's future.
- National Savings Certificates (NSC): NSCs are fixed-income investments offered by post offices. They have a fixed tenure of 5 years and offer a guaranteed return with tax benefits under Section 80C.
Also read: How to invest your EPF savings
2. Gold investments
Gold has traditionally been a symbol of wealth and security in India, and it can serve as a valuable asset in your child's financial portfolio. You can invest in gold through Gold ETFs or Mutual Funds, which offer the convenience of trading on the stock exchange without the need for physical storage. Sovereign Gold Bonds (SGBs) are another option, issued by the government with a fixed interest rate and the potential for capital appreciation. However, if you prefer tangible assets, you can also consider buying physical gold in the form of coins or bars.
3. Mutual Funds
Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer a variety of options based on your risk tolerance. Equity mutual funds can provide potentially higher returns over the long term, making them suitable for investors with a longer investment horizon and higher risk tolerance. If you prefer a safer option, debt mutual funds offer relatively stable returns by investing in fixed-income securities. Alternatively, hybrid mutual funds combine equity and debt, balancing risk and return.
4. Fixed Deposits (FD)
Fixed deposits offer a stable and predictable return with minimal risk, making them ideal for conservative investors. Bank FDs are a common choice, providing a fixed interest rate for a specified tenure. Bajaj Finance Fixed Deposits, in particular, offer competitive interest rates and flexible tenure options, making them an attractive option.
Also read: Short-term investment plans with high returns
How can kids save money?
Teaching children to save money is a valuable life skill that sets them up for financial success in the future. Here are some effective ways kids can start saving:
- The Piggy Bank: This classic method is a great starting point for young children. It provides a visual representation of their savings and makes it tangible and fun.
- Savings account: Consider opening a savings account for your kid at a local bank or credit union. This teaches them about banking and the concept of interest.
- Allowance: Giving kids an allowance, even a small amount, provides a regular source of income they can learn to manage. Encourage them to save a portion before spending.
How much should I save for my kids?
The amount you should save for your kids depends on various factors, including:
- Your child's age: The younger your child, the longer your investment horizon, allowing you to potentially take on more risk for higher returns. If your child is older, you might want to focus on more stable investments with a shorter time frame.
- Financial goals: What are you saving for? Education, wedding, or a down payment on a house? Different goals require different amounts of savings and investment strategies.
- Future expenses: Estimate the future cost of your goals, considering factors like inflation. For example, education costs are rising rapidly, so you'll need to factor that in.
- Income and expenses: Consider your current financial situation and how much you can realistically save each month.
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