Here's All You Need to Know About Child FD Plans in India

Here's All You Need to Know About Child FD Plans in India

In India, children are the wealth and future of the family. So, people often provide the best things for their children. But all the provisions made for a better lifestyle require monetary expenses. These expenses can also become substantially high during the latter stages of life. It might become tedious to arrange such high amounts in times of need.

Most of the possible expenses can be calculated when the child is in the age group of 16 to 20. Considering this, people often choose long-term investments options that provide benefits when their child reaches that particular age. Fixed Deposits are one of the most popular types of investment for children. Read on to more about the available child FD plans in India.

Modes of Investment for Children

People turn towards a lot of options when they require to invest the money and increase the capital. Most preferred investment schemes are risky like Equities, Shares, Trading, Business, etc. Even though they have high-risk elements, people prefer them for their high return providing qualities.

But when it comes to investing for their children, one needs to play it safe. For example, even though some investments like gold, equity, or assets seem like good options, they are prone to risks related to deflation. So, if you invest in these thinking that they will yield good returns, you can face some setbacks due to the economy. There are several things one must look for in a good investment option for their kids. Given below are a few crucial points in the selection of good child investment plans :

  • Low or zero risk on invested capital
  • Definite rate of return
  • Nomination Facility
  • Trustworthy investment
  • Tax exemption benefits

There are only a few modes of investment that can offer all these features in their products. Given below are those investments which provide all these facilities to investors looking for investment for children.

Fixed Deposits

Fixed deposits are one of the most sought-after investment plans in India. Most Indians prefer FD over other modes of long-term investment, especially if the FD is in a nationalized bank. The popularity the FD faces in India is because of the surety that the banks give in matters of settlement. Also, FD has one of the highest interest rates in comparison to other banking investment schemes.

Nowadays, child FD plans in India have gained popularity as an instrument to save money for a child’s future. Child-specific Fixed Deposits have specific benefits which woo the parent community into investing. Fixed deposits are one of the few financial instruments that can provide guaranteed returns with almost zero risks.

FDs have a one-time premium payment and yield pre-defined interest rates annually or quarterly, depending on the bank. The interest rates are under the regulation of RBI, so all major banks provide almost the same interest rates on FDs. Several long-term investments have the disadvantage of inflation. But FDs have a greater interest rate than the expected inflation rate and a long maturity period. So, by the time the scheme matures, this cumulated interest increases the capital amount, which can beat the inflation rates.

Recurring Deposits

Recurring Deposits are a sort of fixed deposits with regular interval. They mostly have monthly deposits of lower amounts instead of the one-time high amount of fixed deposits. Recurring deposits are suitable for everyone as they can even have low deposit amounts such as a thousand rupees. These regular payments to the RD account gather and accumulates. It also attracts interest rates which are usually higher than standard savings account interest rates. But it is always lower than the interest rates of FDs.

Another feature of RD is that it is comparatively short-term, such as 1 to 5 years. So, one can get instant benefits from RD with a guaranteed return on investment. As recurring deposits have lower interest rates, several banking and non-banking agencies have similar plans. Post offices, Jewelleries, Chit Funds, NBFCs, etc., have their respective versions of RDs. People take benefit from any of these schemes as per their requirements.

Insurance Policies

Insurance policies are excellent means of investment for children. They provide insurance cover as well as prove to be beneficial in saving a lot of money paid as income tax. There are several benefits of choosing insurance policies as investment options such as reliability, nomination facility, partial withdrawal, monthly income, etc.

But a drawback of insurance schemes is that while most of the plans provide money-back facilities, they don’t have any return on investment. At the term-end, you only get back the total paid deposits and nothing more. You can claim deductions in income tax for the premium payments and the maturity returns. But, even then, the benefits are low in comparison. It is because inflation adversely affects the maturity amount of long-term insurance policies.

A solution to the problem of zero return on investment for insurance schemes is a ULIP. Unit Linked Insurance Policy or ULIP is an insurance scheme integrated with the benefits of investment in bonds and other market-linked instruments as well. These insurances are dependent on nationalized bonds whose selection is at the policyholder’s discretion. So, a policyholder who chooses a ULIP gets insurance cover and a high return on investment from the same scheme.

Post Office Savings Scheme

Post office savings schemes have the most significant number of investors in India. Indian Postal Service introduced several savings schemes which have FD and RD plans. Even though the interest rates change intermittently, they are within a reasonable range. You can select a savings scheme as per their desired investment amount and duration of your liking. Several people invest in these schemes as savings for their children.

National Savings Certificate

A national savings certificate is also a product of the Indian Postal Service obtainable from any post office in India. In this scheme, people can invest any amount of money and obtain high interests at maturity. People prefer NSC for their children as it tax savings potential up to 1.5 lakh rupees per annum.

Sukanya Samriddhi Yojana

Sukanya Samriddhi Yojana is a scheme targeted at parents of female children. People can invest in SSY from any bank in India in the form of annual payments. It has maturity benefits after 15 years from the start of the scheme. It also has benefits when the girl child reaches the age of 18. People often use the maturity return for their girl children’s education and future plans.

Child FD Plans in India and their benefits

All major banks have their own FD Plans, which provide different returns and benefits. But all of them serve the purpose of becoming extra beneficial for children under the category of child FD plan. These plans usually begin when the child is below ten years old and have maturity after 15 years or so. Some even provide benefits when the child attains the age of 18 irrespective of the joining age or policy maturity date.

The procedure to start an FD is very simple. You can join in an FD from any bank irrespective of having an account in that bank. Before joining, you just need to verify the scheme’s interest rate, premium amount, maturity date, and T&C. After that, you will get the invested money and returns together at maturity. Some FDs give the option to choose between a one-time lumpsum return and monthly income. You can select any one type at maturity based on the requirements arising in the future. Given below are some of the benefits of the child FD plans in India :

Educational expenses

The main reason why people choose child plans is to meet the expenses of their education. Higher education, particularly university-level education, is costly in quality education imparting colleges. There might be scholarships and grants for top-scoring students, but it is always good to have a backup plan. A good capital raised from child FD plans in India prevents children from compromising education choices because of low marks.

It is always good to depend on child FD plans in India rather than relying on educational loans. As in the long-run, debt of any kind hinders the financial and mental wellbeing of young adults. Even though investing in child FD plans can sometimes be tedious, it will provide peace of mind whenever the need for money for education arises.

Marriage and significant life occasions

The second main benefit of child FD plans in India is that they provide large sums of money for marriage and other major life milestones like building a house, buying vehicles, etc. All adults will come across such occasions, and with the funds raised from FD plans, they can be assured during those events.

Investment for Business ventures and Start-ups

Nowadays, a new trend among modern-mentality families is to save money for their children for future business and entrepreneurial developments. Especially for girl children, instead of saving money for marriage, parents now invest in child FD plans for their future business potential.

Backup for emergencies

If a person requires monetary assistance, none of the above scenarios the returns from the child FD plan in India can be helpful in case of any emergencies. During any unexpected occurrences, people can use the savings from their FD.

Conclusion

Now you must have a clear idea of why having a child FD plan in India is essential. Insufficient money in times of need can become the source of several problems within a family. Saving money and increasing capital through investment in FD can help remedy all those financial problems a family can face in the future. So, if possible, one must always choose to invest in such schemes to ensure peace of mind for them and their children.

Disclaimer:

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.

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