Children's Day: 4 Best Long-Term Investment Options For Your Kids' Education

Education costs are rising faster than anything else. Over the last decade, while general inflation hovered between 3.5 per cent and 7 per cent, education costs rose by an average of 8 per cent to 10 per cent every year. Between 2012 and 2020, food inflation stood at around 9 per cent, healthcare at 8 per cent, but education topped them both at 10 per cent. Even IITs doubled their fees during the pandemic, from 90,000 to two lakh for undergraduate courses in 2021. And it's not just about expensive degrees. Lack of planning is already forcing many to quit halfway.

According to the Survey on Social Consumption by the National Sample Survey Office (NSSO), nearly four in 10 students aged 20 to 24 dropped out to support their families financially. So while every parent wants to give their child the best, very few plan for it the right way.

To give your child a financially stable future, you can invest for them while they are young. Here, we have compiled a few long-term investing options that can provide your child with stability, growth, and security over the long term.

1. Sukanya Samriddhi Yojana (SSY)

The Sukanya Samriddhi Yojana is a government-backed, risk-free option for investing specifically in a girl child's future. Currently, it offers an interest rate of 8.2 percent, calculated and compounded annually. The interest rate is currently one of the highest among savings schemes.

Now here's how it works: You can invest up to Rs 1.5 lakh per year for 15 years, and the account matures after 21 years.

So if you start when your daughter is two, it matures when she turns 23. Let's say you invest Rs 5,000 per month for 15 years, which amounts to Rs 9 lakh in total. At 8.2 per cent, it can grow to around Rs 29 lakh by maturity. SSY qualifies for triple tax benefits (Triple E) under the old tax regime. This means you get a deduction under Section 80C for up to 1.5 lakh a year while investing. The interest earned is tax-free, and the maturity amount is also fully exempt. And in case of the new regime, while you don't get Section 80C benefits, the interest and maturity amount stay tax-free.

2. Public Provident Fund (PPF)

Now, for a girl child, there's the Sukanya Samriddhi Yojana with assured returns, but if you are investing for a boy, the Public Provident Fund (PPF) is a solid alternative. PPF is not just limited to investing for your retirement. It can be used to achieve your long-term financial goals, including investing for your child as well. You can open a PPF account in your minor child's name and invest up to 1.5 lakh in a year. Just remember, this limit is shared between your own account and your child's. The account matures in 15 years, but you can extend it in five-year blocks with or without fresh contributions.

Now, like SSY, PPF also enjoys a Triple E tax status under the old regime. And under the new tax regime, while the interest and maturity stay tax-free, you don't get Section 80C benefits at the time of investing. Currently, PPF is offering an interest rate of 7.1 per cent per annum.

And while that may not sound exciting at first, listen to this: If you fall in the 30 per cent tax slab, you would need a fixed deposit offering over 10 per cent pre-tax returns to match what PPF gives after tax ... that's the real value. So, say you invest Rs 1.5 lakh every year for 15 years, Rs 22.5 lakh can grow to around Rs 41 lakh by maturity. We have assumed current interest rates for calculation purposes here.

3. Mutual Funds

Next comes mutual funds. Education costs in India have been rising in double digits, which means expenses could double every six to seven years, and relying only on traditional investments might not be enough. So if your child is still young (say two, five, or even 10 years old), you've got time on your side to save for his or her future. And time is exactly what equity needs to work its magic.

You can either go for specialised children's mutual funds or just keep it simple with regular equity funds. There are 13 children's mutual fund schemes in India. These are solution-oriented funds meant to build a corpus for goals like education or marriage. Now, these funds come with a lock-in of five years or until the child turns 18, whichever is earlier. Some funds offer both locked and non-locked options. Now, if you are not comfortable with the lock-in, you can opt for another category of equity mutual funds as well.

Under the equity funds category, we have large-caps, mid-caps, small-caps, large and midcaps, multi-caps, flexi-caps, etc. And then we have hybrid funds, which invest both in equity and debt. Diversified equity funds, on average, have delivered 12 per cent to 14 per cent returns in the long term. But since equity funds depend on the performance of the stock market, historical returns may or may not repeat in the future. That’s why if you want to invest in equity mutual funds, seek guidance from a Sebi-registered advisor and  always do that with a long-term horizon of at least seven years.

So, basically, your choice of mutual funds to invest for your child's future will depend mainly on your time horizon and your risk appetite.

4. Term Life Insurance (Protection)

Moving to the last and most critical option. And this one is not about growing your money, but protecting it.

You might be doing everything right, from investing regularly, planning for your child's future, and staying disciplined. But what if life throws a curveball? What if something happens to you tomorrow? That's where term life insurance becomes critical.

A sufficient term plan ensures that even if you are not around, your family gets a lump sum payout to cover the goals you have been saving for, especially your child's higher education or any other long-term needs. A healthy 35-year-old can get a Rs 3 crore cover for just around Rs 3,000 per month, depending on the insurer. No investment plan can match this kind of protection for such a low cost. Term insurance does not grow your money, but it ensures that everything you have planned isn't at risk if life takes a turn.

So, the best you can do for your child’s future is start early and stay regular with your investments. With the right mix of investment options that can offer growth and protection, as a parent, you can make sure your child’s dreams are not held back by money.