Saving for children’s future is one of the top priorities of every parent. And quite rightly so. A good course from a good college can set a child’s career on the right track.
While there are many investment options available to secure your children’s future, the following are the top three:
· Sukanya Samriddhi Yojana (SSY): for daughters only.
· Equity mutual funds (MF): for both sons and daughters.
· Public Provident Fund (PPF): for both sons and daughters.
When it comes to interest rates, SSY is better at 7.6 percent then PPF at 7.1 percent. But that should not be the only reason to pick SSY over PPF.
A girl child under the age of ten can open an SSY account. It has been in operation for 21 years (or it will close post her wedding).
Deposits are accepted until the 15th year. From the 16th to the 21st year, the SSY corpus will continue to generate returns and no additional contributions are permitted.
The entire SSY corpus is locked in until the girl child turns 18 years old. Following that, only up to 50% of the amount can be withdrawn for educational purposes. As a result, liquidity may be an issue. What if your daughter’s higher education expenses exceed the available 50% of the SSY corpus? You have more lying around, but it’s not available when you need it.
Nonetheless, SSY has some merit, and it provides better tax-free returns. However, if liquidity after the 15th year is a concern, having a PPF account is also recommended, as funds can be withdrawn from a PPF account after 15 years. PPF offers more flexibility and can be used as an investment vehicle even after the daughter’s marriage or the closure of her SSY account.
Here are a few thumb rules to follow:
· If you are ultra-conservative and the goals are 15-plus years away, then keep it simple and give your 100 percent to SSY and PPF.
· If your children are older, the long lock-in periods of SSY and PPF may not align with your goal requirements. In that case, you can pick a few debt MFs.
· If you have a moderate risk appetite, then allocate 50 percent to equity MFs, and split the remaining 50 percent between SSY and / or PPF.
· For moderately aggressive to aggressive investors, it can be 80-100 percent in equity funds, and the remaining (if any) in SSY / PPF.
