Most parents in India are worried about the financial security of their children, especially their daughters. They often ask if there is a specific investment instrument that they should use to save for their children. For instance, I was recently asked, “Shall I use ‘LIC Kanyadaan Policy’ or ‘Sukanya Samruddhi Yojana’ for accumulating a corpus for my Girl Child?”
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So, is there any specific investment instrument that parents should use to save for their children? The answer is no. The term “Kanyadaan Policy” is not even used by LIC. It is just a marketing term for a simple endowment policy with a waiver of premium rider.
Both the insurance policy and the SSY have the major drawback of limited withdrawal flexibility. In the insurance policy, you can only withdraw the money at maturity. In the SSY, you can withdraw 50% of the money for education after the 10th standard, but this may not be enough for all educational expenses as needed.
If so, then is there any use case for these instruments
- There is no use case for Life Insurance Endowment Policy as it does not help get adequate Life Insurance coverage, nor does it provide an adequate return on the amount invested. One should avoid buying such instruments.
However, if someone has already enrolled in it, it’s fine to continue.
- For SSY, One can use it for a long term saving option with the thought process of waiting till maturity with the flexibility to invest any amount up to Rs. 1.50 lakhs per year till the prescribed time limit of investing.
The most important thing is to start saving for your child’s future, regardless of your chosen investment instrument. Here is a simple process to get started:
- Set a goal for yourself. What do you want to save for your child? Their education? Their marriage?
- Estimate how much money you need to save. This will depend on your goal and your child’s age.
- Choose an investment instrument. Many different options are available, such as savings accounts, bank rd, mutual funds, Stocks and bonds.
- Start saving regularly. Even a small amount saved each month can add up over time.
Once you have started saving, you can choose the right investment instrument for you. There is no need to rush into anything; you can always change your mind later. The most important thing is to start saving today.
The below post explains the above process in more detail: Want to invest right for your child? Do this simple calculation today with your spouse!
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
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