Top 5 Financial Gifts For Your Child

Once the little one starts going to school, every parent starts thinking of how his/her career might shape up and shine bright. Tracing the best financial gifts for kids might be an essential from this point itself. This might help you build the necessary corpus without straining your pocket. Here’s a list of investment options which may be considered as suitable  financial gifts for a child. However, its crucial to understand how they work and what they offer, to figure out if they fit well to the goals you wish to fulfil.

 

Five Financial Gifts for Your Child

 

 

1. Child Insurance

 

The way life has become uncertain these days, and with costs constantly rising in every sphere, securing the child’s future may be the foremost priority for many. Many insurance companies offer child insurance plans that combine insurance and investment^[1]. Here the premium paid by the policyholder parent not just provides a life cover but acts as a savings and an investment tool as well. Child insurance invests a portion of it into market-linked funds or keeps it in fixed assets. A unique feature of these products is that they pay a death benefit to the family in the event of the unforeseen and continue with the policy till maturity with a waiver of premium^[1]. Post that, a maturity benefit is paid to the child once the policy expires, which is offered in lump sums or regular payouts. With the death benefit the child's education continues despite the unfortunate circumstances. While the maturity benefit is meant to fulfil the later life goals like higher studies, overseas education, or marriage^[1]. Thus, while choosing financial gifts for your children, taking a look at child insurance plans may be beneficial.

 

2. Systematic Investment Plan (SIP)

 

Saving sufficiently for the child’s future yet staying easy on the pocket may be preferred by many parents. A Systematic Investment Plan (SIP) is designed to fit the purpose of growing your money by investing it in Mutual Funds^[2]. Under this investment opportunity, parent can choose to invest a fixed amount in a disciplined and regular manner for a long period, which accumulates into a corpus over the years through the power of compounding. The money is put into chosen funds that might yield bigger returns from equities if invested for a long time. Thus, a modest investment can grow into a substantial fund that can be used to fulfill your child’s dreams. SIP can be included in the list of financial gifts for your children that won’t burden you either.

 

3. Public Provident Fund (PPF)

 

The Public Provident Fund (PPF)^[3] may be considered another crucial one in the list of best financial gifts for kids. PPF offers guaranteed growth of your money. Here one can invest up to Rs 1.5 lakhs a year in the PPF account for 15 years, this amount continues to grow through compound interest. You can open an account under your name or in the name of your child. Both will help you create a corpus for the future while enjoying income tax deductions under the old tax regime^[3]. The PPF deposits are locked in for 7 years, after which partial withdrawals are allowed.

 

4. Health Insurance

 

The pandemic-instilled fear has made health insurance a frequent choice of investment. Many parents these days are opting for child health insurance^[2] with coverages for critical illnesses and other medical needs. This may be another financial gift for your children to ensure financial support for their well-being. Most health insurance plans cover major diseases, injuries, and annual check-ups to provide a wholesome safety net when the child grows up. While there are separate child health insurance plans available, parents can also choose family health insurance plans, which are designed to fund the medical needs of both the parents and the children under a single umbrella.

 

5. Sukanya Samriddhi Yojana

 

If you're a parent to a girl child, chances are that you're worried about her education and marriage. Generally parents try to save any amount possible thinking ahead for their girl child's marriage. Sukanya Samriddhi Yojana^[3] is a government social welfare scheme, for girl child. It is designed to support the education and marriage of the beloved daughter of the family. Under this scheme, the parent can open an account for the girl child or, at the most, two accounts for two girl children. You can opt for any amount between Rs 250 and Rs 1.5 lakhs annually can be invested in each account that offers tax-free returns and is meant for long-term goals. It also fetches you tax deductions under the old tax regime. A Sukanya Samriddhi Account (SSA) thus may also be a considerable choice as a financial gift for your girl child

 

Savings Habit: A Timeless Gift

 

As you save and invest to secure the future of your little one, inculcating the habit of saving^[2] is one of the best financial gifts you can give your child. You can do this by opening a basic savings account in your child’s name and teaching him/her to save a little amount every month. This may help them form the habit of disciplined savings from an early age. You can also gift them financial board games or easy-read books to help them understand the basics of finance and the need for savings and investment. They may recognize its importance and value this thoughtful step of yours as they grow up.

 

A Last Note to Parents

 

Savings and investments as financial gifts for your children are not just beneficial for their future but are helpful for you too^[3]. These investments may fetch you tax deductions subject to sections 80C, 10(10D), and 10(32) of the Income Tax Act 1961 under the old tax regime. So, before you take your pick, remember that income from the investment for the child gets clubbed to the parent’s earnings for the income tax calculations under 64 (1A) of the Act.

 

 

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