Saving for their children's future is one of the parents’ top priorities. A good course from a good college can help a child's career get started on the right foot. While there are a variety of investment options available to secure your children's future, the following are the top three:
SSY (Sukanya Samriddhi Yojana) and PPF ( Public Provident Fund)
Both SSY and PPF are debt instruments. In terms of interest rates, SSY has a higher rate of 7.6 percent than PPF, which has a rate of 7.1 percent. But that isn't the only reason to prefer SSY over PPF.
You can open an SSY account for any girl child under the age of 10. Deposits are accepted until the child attains 15 years of age. 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 Following that, only up to 50% of the amount can be withdrawn for educational purposes.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.
SSY 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 However, if liquidity after the 15th year is a concern, having a PPF account is also recommended, as funds can be withdrawn from a PPF account after 15 years.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.
Equity MFs
However, if your daughter's higher education goals are several years away, neither PPF nor SSY are the best options. This is due to the fact that both PPF and Sukanya are long-term debt products. Given the high cost of education and inflation these days, it's possible that SSY and PPF savings will fall short in keeping up with inflation.
When investing for long-term goals, sound investment logic dictates that it is preferable to invest more in equity because it is the only viable option for generating long-term returns that outperform inflation. Your best bet is to do so through a disciplined SIP (systematic investment plan) in equity funds.
Here are a few thumb rules to follow:
1. If you are ultra-conservative and your goals are 15 years or more away, keep it simple and devote your entire portfolio to SSY and PPF.
2. If your children are older, the long lock-in periods of SSY and PPF may not be compatible with your goals. In that case, you can select a few debt mutual funds.
3. If you have a moderate risk tolerance, allocate half of your portfolio to equity mutual funds and the other half to SSY and/or PPF.
4. For moderately aggressive to aggressive investors, 80-100 percent can be in equity funds, with the remainder (if any) in SSY / PPF.
(Disclaimer - Any views expressed are the author’s own and have nothing to do with OTV’s charter or views. OTV does not assume any responsibility or liability for the same.)