Having a baby girl is a joy unto itself, and as a parent there are various aspects you need to keep in mind in raising a girl. One of the most important factors will be savings for her higher education and marriage. In India, it is still predominantly the parents of the bride who pay for the ‘Big Fat Indian Wedding’, and you need to save up for this. Let us look at a few schemes that are tailored specifically for investments for girl children.
There are 4 main options for investing in, child plans, mutual funds, debt instruments (e.g. PPF, FD, MF), and the Sukanya Samriddhi scheme.
Sukanya Samriddhi scheme
This is the only girl child-specific investment option available at the moment. The scheme was started to benefit girl children, and as such is applicable only for those who have girls below the age of 10 (with the caveat that one can invest under this scheme even if the girl turns 11 by December 1, 2015).
This scheme was developed with a specific agenda in mind, and unlike the PPF, its time frames and mode of working are with this in mind: meaning that the redemption is to be done at a time when the money is required, either for higher education or for marriage. However, given that this is going to be a debt-based instrument, and the interest rate announced is 9.1 per cent, if one invests Rs 1.5 lakh in this from the time their child is 10 years old, for 11 years till she turns 21, the corpus is likely to become around Rs 29 Lakh: meaning that this may not cover the cost of even a foreign education at that time, and one can look at this scheme to supplement any additional investments done for their child.
Child plans
These are insurance covers that pay out a lump sum to the child in the event of the parent’s untimely death. Post this, the insurance company waives all future premiums and continues investing money on behalf of the child, and the investment returns will be paid out to the child at regular intervals. This is mainly used to take care of the child’s education and upbringing.
Mutual funds
Many mutual funds have children-specific schemes, which focus the investment into a judicious combination of debt and equity with the emphasis on capital preservation with moderate returns. These are typically long-term funds with an investment horizon of 9-10 years.
Debt instruments
This is one of the safest avenues to save for your girl child, with capital being more or less secure. One of the best options is to go in for a PPF when your child is very young. The corpus can grow over 15 years and benefit from the power of compounding. Apart from this, bank fixed deposits (or better yet recurring deposits) and debt mutual funds are other options that one can pursue.
The most important thing to remember is to start saving very early. It is advisable to start saving for a child as early as possible, or at least at the time you are planning to have a child, as this will reduce the burden of having to save more once the child has come due to the power of compounding.
One should also plan and invest for not only the child’s immediate requirements, but also for their education and (especially in India) their wedding. The earlier one starts planning and saving money for these essential parts of their child’s life, the larger the corpus is likely to be. It is also advisable to save for near-term goals (such as food, toys, medicine) in debt instruments, and invest in equity instruments for the long term, such as education or marriage.
The writer is CEO, Right Horizons
