Sukanya Samriddhi, provident fund, bank deposits, mutual funds: Compare investments for your child's future

Securing your child's future is an important aspect of financial planning and the right investment scheme can make all the difference when it comes to meeting their goals. For parents, investing in your children's future can secure major life expenses, including education, healthcare, hobbies and other aspirations.

Here's we provide an overview and comparison of the various government-backed schemes available for children, that provide a secure and structured approach to transform regular contributions into a sizeable financial base for your child's future.

Sukanya Samriddhi Yojana

The Sukanya Samriddhi Yojana (SSY) is a government-backed savings plan designed for parents saving for their daughter's future. Launched under the Beti Bachao Beti Padhao Yojana initiative, it provides tax benefits on the principal and interest earned. Further, it is also among the highest interest rate among small savings schemes at 8.2% for this quarter.

• Anyone can open an SSY account for their girl child and begin investing with as little as ₹250 and a maximum of ₹1.5 lakh annually.
• This account can be opened with any public bank or nearby post office.
• The maturity period for the scheme is 21 years from the account opening date.
• Your child has to be at least 10 years old for a valid account to be opened by the parents / legal guardians.
• A key feature of this scheme is that you can withdraw up to 50% of the balance once your daughter turns 18 — opportune time to fund her higher education.
• These accounts are required to have the annual minimum deposit, failing which a nominal penalty of ₹50 is charged.

• Dormant or lapsed accounts are allowed to be revived once penalties are paid.
• The scheme is eligible for tax deduction up to ₹1.5 lakh under Section 80C of the Income-Tax Act. The interest earned and maturity amount are also tax-free.

NPS Vatsalya Yojana

The National Pension Scheme's NPS Vatsalya Yojana enables parents or guardians to create a retirement savings account for their children until they reach adulthood. Notably, once the minor turns 18, the account automatically converts into a standard NPS Tier I account, allowing retirement savings to begin early and grow through compounding.

• The minimum annual contribution is ₹1,000, with no upper limit.
• The NPS Vatsalya Scheme interest rate ranges between 9.5% to 10%.
• The account can be opened NPS Vatsalya with PFRDA either online or offline, through pension agents or through the NPS Trust website (eNPS).

• The maximum deduction limit is ₹50,000 under the old tax regime.
• Partial withdrawal is allowed for specified contingency situations such as education, the child's disability (more than 75%), and treatment of specified illnesses.
• At 18 the child can choose to either exit the scheme or continue.
• If they continue, the money will remain locked till 60 years of age, where then can withdraw 60% of the accumulated corpus as tax-free, and 40% is converted into annuities.
• If they choose to exit, 80% of the corpus will be used to purchase an annuity, while remaining 20% can be availed as a lumpsum amount.

Public provident fund

Parents or guardians can open a Public Provident Fund (PPF) on behalf of minors to build a long-term savings fund for the child's future requirements. Some of the key features of a PPF account include a 15-year lock-in period, tax benefits, compounding, etc.

• At a fixed interest rate of 7.1% this quarter, PPF is among the safest investment options for retirement and tax planning in India.
• A PPF account is offered by any post office, public bank, and some private banks in India, with a minimum deposit of ₹100-500 per month.
• Minor's accounts can be opened by their parent and is converted to the child once they are 18.
• You can open one account per person for 15 years. After this term, the account can be extended in blocks of five years indefinitely.
• You can choose to extend the account with or without added contributions.

• Partial withdrawals are permitted only under specific conditions, and the funds must be used for the minor's benefit.
• For inactive accounts, a minimum of ₹500 per missed year of contributions will have to be paid, along with a penalty of ₹50 per inactive year.

Bank deposits

Among the most conservative options for children is the regular fixed deposit and recurring deposit plans with your bank.

• Many banks provide child-specific Recurring Deposit (RD) plans that offer advantages such as lower investment amounts and relatively higher interest rates.

• An RD account involves depositing a predetermined sum every month for a set period. Additionally, account holders enjoy a fixed interest rate on their savings. The interest rate may vary from bank to bank.
• A fixed deposit is more similar to lumpsum investment and some banks offer FD schemes specifically designed for children.
• These FDs typically offer a higher interest rate; however, the rate may vary from bank to bank.
• The PNB Balika Shiksha Scheme, PNB Uttam Non-Callable Term Deposit Scheme, Yes Bank Fixed Deposit for Children, and SBI FD for minor child are a few examples of FD schemes specifically launched for children.

Mutual funds

Mutual funds for children function like regular mutual funds but are structured to help parents invest for a child’s future expenses.

• Mutual funds offer more flexibility in terms of investment amount and tenure.
• You can start with a small amount and invest either as a lump sum or through SIPs (Systematic Investment Plans).
• The rate of return is annualised and offers benefit of compounding and rupee averaging (for SIPs) over the medium- and long-term.
• Some of the popular mutual fund schemes are HDFC Children's Fund, ICICI Prudential Child Care Fund - Gift Plan, Tata Young Citizens Fund and UTI Children's Equity Fund.
• There is a slightly higher risk as this is a market-linked product with no government backing for the investment. However, the MF sector in India is regulated.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.