Even as we celebrate Children’s day, many parents may be looking out for various options to invest their hard-earned money, to build a corpus for their children’s education, or marriage and to secure their future. There are various avenues to invest one’s earnings over a long-term which over a period may result in a sizeable chunk, thus making life easier for the child. We take a look at five long-term savings options, that might help you secure your child’s future.
Sukanya Samruddhi Yojana
As part of the Sukanya Samriddhi Yojana is a small deposit scheme for the girl child launched by the government of India. It is currently fetching an interest rate of 8.3% and provides income-tax benefit. Notably, the scheme offers one of the highest rates of interest and no tax is deductible on the principal and interest even at maturity. A Sukanya Samriddhi Account can be opened any time after the birth of a girl till she turns 10, with a minimum deposit of Rs 1,000. Investments can be made in multiples of Rs 100, and a minimum of Rs 1,000 must be deposited every year. Investors will have to invest in the scheme for a period of 14 years. A maximum of Rs 1.5 lakh can be deposited during the ongoing financial year. The account can be opened in any post office or authorized branches of commercial banks. The account will remain open for a period of 21 years or till the marriage of the girl after she turns 18. To meet the requirement of her higher education expenses, partial withdrawal of 50 percent of the balance is allowed after she turns 18.
Public Provident Fund (PPF)
PPF is another popular choice among parents and across income classes, as minimum deposit requirements are very low and affordable. A PPF account can be opened for as low as Rs 100. Investors must ensure that they put in at least Rs 500 in the year, for a period of 15 years. Failure to make the minimum annual investment will render the account inactive. The maximum deposit is pegged at Rs 1,50,000 in the year. The current interest rate under the scheme is 7.8%. The PPF account does not permit withdrawals until the end of 7 years. Complete withdrawal of funds is permitted only on maturity.
National Savings Certificate
National Savings Certificate (NSC) is a government-backed bond that allows subscribers to save income tax. There is no maximum limit on the purchase of NSCs, but investments of up to Rs 1 lakh in the scheme can earn a tax break under Section 80C of the Income Tax Act. The certificates earn a fixed interest, which is currently at the rate of 7.8% per annum. This interest is added back to the investment and compounded annually. These certificates can also be used as collaterals while taking loans from banks. It is to be noted that NSC comes with a lock-in period of five years. According to India Post website, “Maturity value of a certificate of INR.100/- purchased on or after 1.4.2012 shall be INR. 14 7.61 after 5 years.”
Post Office Monthly Income Scheme (POMIS) Account
Post Office MIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh under single ownership. The interest rate is set each quarter and is currently at 7.5% per annum, payable monthly. The investment in POMIS doesn’t qualify for any tax benefit and the interest is fully taxable. The investment made can be prematurely encashed after one year but before 3 years at the discount of 2% of the deposit and after 3 years at the discount of 1% of the deposit. To maximise returns, some investors open a saving bank account and give a request for automatic transfer of Monthly Income Scheme interest to Recurring Deposit through Saving Bank account.
Bank Fixed Deposits and Recurring deposit
A bank FD is another popular choice for many parents. The safety and fixed returns go well with parents, and the ease of operation makes it a reliable avenue. However, the interest rates offered are much lower than the two options discussed above. Further, the interest earned on the investment is taxable. Recurring Deposit helps investors with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate which is better than rates offered on the savings account. Tax Deducted from Source ( TDS ) is applicable on Recurring deposits. If interest earned on recurring deposits exceeds Rs. 10,000 a year, TDS at the rate of 10 percent would be deducted by the bank.