Here's How you can Build a Better Future for your Child

Ask any parent and they’ll probably tell you that the best investment plan is to first secure a child’s future with policies and deposits. This is true because we live in a time where the costs of education and lifestyle are constantly increasing. And, if you don’t save enough, your kid might not get the future they deserve. But, if you start saving now, one day you and your kid will be glad that you worked hard enough to secure their lives.

There are plenty of ways in which you can reinforce the stability of your child’s future lifestyle; a few of them are listed below.

Are Insurance Policies Beneficial?

Child insurance plans will protect your offspring upon the untimely demise of the insurer. With the rising costs of education, investing in a child insurance plan makes sense because your kid will receive payouts at regular intervals even when you’re not around. What’s more, the premium paid for such a plan is tax deductible under Section 80C of the Income Tax Act; and the income generated from it, is exempted from tax under Section 10(10D). However, note that these insurance plans must be taken only if you can understand the benefits and pay the premiums on time. If you do not understand the terms of the plan and cannot track its performance, don’t take one out at all.

These plans can be costly if the benefits are higher. Alternatives to such insurance plans include life insurance covers and mutual funds which offer excellent returns and maximum cover.

The Truth about Recurring Deposits

Recurring deposits are perhaps the first step parents take towards securing their child’s future. Listed below are some of the benefits available under such a scheme.

• Tax Deducted at Source (TDS) is not applicable on RDs
• You can utilise your RD anytime, even before maturity, by paying a small fee
• Some lenders offer RDs with the flexibility of increasing the deposit
• RDs can be opened for as little as Rs.500
• You can nominate your child as the receiver of the money at any time
• Loans can be taken out against recurring deposits, which can amount to 70-80% of the RD’s total value
• The interest is compounded on a quarterly basis

Consider a situation where your invest Rs.10,000 every month in a recurring deposit that offers an interest rate of 7.25%, and has a term of 120 months (10 years). When the amount matures, your child will receive an amount of Rs.17, 61042.

However, note that the funds accumulated in such accounts might not be sufficient in the future, thanks to inflation. This is the reason why you should deposit as much as possible and look for lenders who offer a high rate of interest on RDs.

The Good and the Bad Sides of Real Estate Investments

You’ve passed the Home Loan eligibility criteria of a financial institution and you’ve calculated the EMI amounts with a Home Loan repayment calculator. Now, you’re looking for a home that you’ll gift to your kid in the form of a long-term investment.

This is a great idea because by doing so not only do you help them save their income — by eliminating the need for paying rent or buying a new house—but you also secure their future housing.

But here’s the bad news—what if you cannot clear the debt? The gift might turn into a nightmare for your child as they would be entangled in EMI payments.

Moreover, can you guarantee that your child will stay in the same house forever? Probably not. There’s a possibility that they might go abroad and settle down there. This might mean that selling and maintaining your precious gift could turn into a real pain for them. This is the reason why you should consult them first and assess your Home Loan repayment capability before purchasing a property.

Although there are plenty of resources that can help you shape your kids’ lives, ultimately, it’ll be them controlling the money. Therefore, you should make sure that they understand the importance of money management from a young age. They should use the investments you have made cautiously and not spend them on frivolous activities.