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What Are Child Savings Plans?

Financial products known as Child Savings Plans combine the advantages of investing and insurance. These plans offer life insurance in the unfortunate event of the parent's passing and can assist parents in building a corpus of money for their child's future needs, including education, marriage, or other major expenses.

A child savings plan gives your child the opportunity to receive a lump sum payment in the unfortunate event of your death. As a result, it might help the child with their schooling and other needs. Additionally, you can apply for loans against the plan.

Why is it important to buy a child-saving plan?

A significant impact on your children's lives can be made by saving for them. Most importantly, with careful planning, it is possible to combat inflation-related cost increases.

In the end, you will benefit your children in nearly every significant stage of their lives if you start saving for them now. Saving money for your kids gives them a strong foundation that increases their confidence in everything, from the quality of education they receive to becoming independent and starting something of their own. The money you set aside for them serves as a cushion of safety and gives them the best start in adulthood.

Key benefits of child savings plans

Child savings plans have several advantages, including:

The combined benefit of life insurance and savings: : These plans provide both life insurance and savings. They assist you in providing for your children's future while also guaranteeing their financial stability in the event of an unfavorable circumstance.

Money for emergencies : You can use these plans in the event of an unexpected financial crisis. You can use the partial withdrawals they allow you to make for any urgent needs.

Security of finances : Children's savings plans offer a lump sum payment in the form of the claim amount in the event of an unfortunate event. Furthermore, all future premium payments are handled by the life insurance company, and the plan remains active. No matter what, the payout after the policy term guarantees that your children's dreams come true.

Benefits from taxes* : In addition, these plans provide Section 80C tax benefits on premiums paid up to ₹1.5 lakh in a fiscal year. According to Section 10(10D) of the Income Tax Act of 1961, the payout received after the policy term is likewise tax-exempt*.

List of Child Savings Plans

The following are a few of the top investment strategies for kids in India

Plans for Systematic Investments (SIPs) : Investing in mutual funds through systematic investment plans, or SIPs, is quite common. They enable you to make fixed monthly or quarterly investments of a predetermined amount of money. Therefore, even if you can only afford to invest a small amount each month, it is a good way to build wealth over time.

There are numerous varieties of mutual funds to choose from. Thus, you can select one based on your child's age and financial objectives. You might wish to invest in a retirement fund or a fund for your children's education, for instance.

Child ULIPs : Unit-linked insurance plans (ULIPs) for children provide both investment and insurance benefits. Put another way, ULIPs are a smart choice if you wish to save for your child's future as well as give them financial security.

Child ULIPs invest in a mix of equity and debt securities. Although the equity component of the investment carries a higher risk, it has the potential to yield higher returns. Though it carries less risk, the investment's debt component yields smaller returns.

Sukanya Samriddhi Yojana (SSY) : For girl children, the government offers a savings program called the Sukanya Samriddhi Yojana. In addition to offering tax advantages, it has a high-interest rate of 8.0% compounded annually.

Girls up to the age of ten are eligible to open SSY accounts. A ₹250 minimum and a ₹1.5 lakh maximum deposit can be made annually. When the girl reaches the age of 21, the account matures.

Public Provident Fund (PPF) : The PPF is a government-sponsored savings plan that provides a high interest rate of 7.1% along with tax advantages under Section 80C of the income tax. This investment option has a 15-year maturity period and is considered long-term. After five years, though, you can take money out of your PPF account.

Anyone over the age of eighteen may open a PPF account. A ₹500 minimum deposit and a ₹1.5 lakh maximum deposit are required annually.

National Savings Certificates (NSCs) : Savings certificates backed by the government, or NSCs, have an interest rate of 7.7% compounded annually. For investors seeking guaranteed returns on low-risk investments, they represent a good option.

The maturity period of NSCs is five years. After three years, though, you can take money out of your NSC account.

Debt Funds : Mutual funds that invest in fixed-income instruments, like bonds, are known as debt funds. For investors seeking guaranteed returns on relatively low-risk investments, they represent a good option.

You can select a debt fund based on your investment horizon and risk tolerance, as there are numerous varieties available.

Recurring Deposits (RDs) : RDs are a particular kind of savings account that lets you make monthly deposits of a set amount of money for a pre-arranged length of time. Your deposits are rewarded with compound interest over time.

Consequently, RDs offer you a solid means of setting aside money for your child's future needs, like college or a wedding. They are a fantastic choice for investors seeking guaranteed returns on low-risk investments.

How does a child savings plan work?

Child savings plans provide you with two key advantages. These plans assist you in setting aside funds for your kids' future requirements and in providing for their financial security in the event of an untimely incident.

Choosing a Plan : Based on their financial objectives, their risk tolerance, and the unique needs of their child, parents or guardians select an appropriate child savings plan.

Account Configuration : Open a savings account or invest in the selected plan. During the process, you might need to present the required paperwork, such as proof of identity and address.

Regular Contributions : Make consistent contributions to the savings plan. Depending on the plan selected, this can be accomplished through monthly, quarterly, or annual contributions.

Allocation of Investments : A variety of asset classes, including debt, stocks, and a combination of both, may be invested with the contributed funds, depending on the type of plan (e.g., government-backed schemes, ULIPs, mutual funds, etc.).

Building Up of Returns :Over time, the invested funds yield returns. The nature of the investment will determine whether the returns take the form of interest, dividends, or capital appreciation.

Compounding : The compounding effect, in which returns on the initial investment generate additional returns over time, is a benefit enjoyed by many child savings plans. The total savings can be greatly increased by this compounding.

Observation and Modifications : Keep an eye on the savings plan's performance regularly. Certain plans might let you modify your investment strategy in response to shifting market or financial conditions.

Which Child Savings Plan Should You Choose?

Your unique situation and financial objectives will determine the optimal investment strategy for your child. Without a doubt, speaking with a financial advisor is a good idea if you are unsure about which plan is best for you.

When selecting an investment plan for your child, take into account the following factors:

  • Age of your child and financial objectives
  • Your time horizon for investments
  • How much risk can you take?
  • Your spending plan

After taking these things into account, you can begin to focus and select the investment strategy that is best for both you and your child.

What Should You Take Into Account Before Selecting a Child Savings Plan?

Selecting a child savings plan is unquestionably an important choice that will have a big impact on your child's financial future. Before choosing a plan, take into account the following factors:

Objectives of the Scheme : Establish the main objective of the savings. Is it for a safety net, marriage, schooling, or something else entirely?

Duration : Think about how long it will be until you need the money. Compared to someone whose child is already in their teens, you have more time if your child is still very young and you are saving for college or marriage.

Flexibility : Check to see if the plan allows for any flexibility concerning the quantity, timing, and duration of payments.

Returns and Performance : Analyze the plan's historical performance, especially if it is an investment-linked product. While historical performance does not guarantee future results, it can assist you in determining how well the plan has performed.

Tax Benefits : There are tax advantages on the amount invested, the returns, or both in some child savings plans. Check the tax implications of the plan that you have selected.

Liquidity : Take into account how simple it is to take money out of the plan, particularly in an emergency.

Reputation of the Provider : Investigate the business or financial organization offering the plan. Selecting a reputable supplier with a strong track record might be safer.

What are the documents required to buy a Child Saving Plan?

The necessary paperwork to purchase a children's savings plan is listed below. Please be aware that, depending on the regulations, more documentation might be needed when purchasing the plan.

The child is the insured person:
  • an application that has been properly completed, including the child's and the parent/legal guardian's data.
  • Parental or legal guardian KYC documents, including passports, Aadhaar cards, PAN cards, and other similar documents. These documents will be used by the insurance company to confirm the parent's or guardian's address and identity.
  • Documents that are officially valid are accepted for KYC.
  • photo of the child and their parent or legal guardian, the size of a passport
  • A document proving the child's age

The child as the nominee :

  • a properly completed application that includes the child's and parent/legal guardian's personal information
  • Parental or legal guardian KYC documents, including passports, Aadhaar cards, PAN cards, and other similar documents. These documents will be used by the insurance company to confirm the parent's or guardian's address and identity.
  • Documents that are officially valid are accepted for KYC.
  • photographs of the parent or legal guardian the size of a passport.
  • A document proving the parent's or legal guardian's age

Frequently Asked Questions

A child savings plan guarantees that you will have a set amount of money set aside for your child's significant life events. Financial security can be achieved by having a savings plan, especially in light of the rising costs of education and other expenses.

Yes, several child savings plans, such as PPF and Sukanya Samriddhi Yojana, provide tax advantages on the amount invested, the returns, or both.

In a child savings plan, a minor may be designated as the nominee. But in this instance, an appointee is also required. An individual over the age of eighteen who may be assigned the duty of overseeing the funds obtained from the plan is known as an appointee.

Indeed, certain products are eligible for a loan facility. For further information, please refer to the product brochure.

The minimum age to open a minor's PPF account is unrestricted. However, until the account holder turns 18, a parent or guardian may only manage a minor's PPF account on their behalf.

You can open both a Sukanya Samriddhi Account and a PPF account for your minor child.

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