Most parents in India are worried about the financial security of their children, especially their daughters. They often ask if there is a specific investment instrument that they should use to save for their children. For instance, I was recently asked, “Shall I use ‘LIC Kanyadaan Policy’ or ‘Sukanya Samruddhi Yojana’ for accumulating a corpus for my Girl Child?”
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So, is there any specific investment instrument that parents should use to save for their children? The answer is no. The term “Kanyadaan Policy” is not even used by LIC. It is just a marketing term for a simple endowment policy with a waiver of premium rider.
Both the insurance policy and the SSY have the major drawback of limited withdrawal flexibility. In the insurance policy, you can only withdraw the money at maturity. In the SSY, you can withdraw 50% of the money for education after the 10th standard, but this may not be enough for all educational expenses as needed.
If so, then is there any use case for these instruments
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- There is no use case for Life Insurance Endowment Policy as it does not help get adequate Life Insurance coverage, nor does it provide an adequate return on the amount invested. One should avoid buying such instruments.
However, if someone has already enrolled in it, it’s fine to continue.
- For SSY, One can use it for a long term saving option with the thought process of waiting till maturity with the flexibility to invest any amount up to Rs. 1.50 lakhs per year till the prescribed time limit of investing.
The most important thing is to start saving for your child’s future, regardless of your chosen investment instrument. Here is a simple process to get started:
- Set a goal for yourself. What do you want to save for your child? Their education? Their marriage?
- Estimate how much money you need to save. This will depend on your goal and your child’s age.
- Choose an investment instrument. Many different options are available, such as savings accounts, bank rd, mutual funds, Stocks and bonds.
- Start saving regularly. Even a small amount saved each month can add up over time.
Once you have started saving, you can choose the right investment instrument for you. There is no need to rush into anything; you can always change your mind later. The most important thing is to start saving today.
The below post explains the above process in more detail: Want to invest right for your child? Do this simple calculation today with your spouse!
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