About 63% of the parents start saving for their child’s future when the child is just 3 years of age. Moreover, some of them start investing money even before their child’s birth. Education is one of the most crucial necessities. It is essential to start investing money for children to avoid running into financial hassles in the future. Plus, the hike in educational institutions’ fees has compelled them to save sooner for children’s higher education. It is critical to start investing soon – because the sooner they start, higher the corpus they would earn.
Whether it is undergraduate courses for engineering or management, the education costs have increased up to 20 – 25 Lakhs. Inflation has affected these rates immensely, and the costs can spike up even more in the next 10 years. The investment option for your child depend on the age of the child, and when the parents have decided to invest. Investing before the child has taken birth, gives the parents enough time to save. Longer the investing time, higher the compounding multiplier effect.
Investing in Fixed Deposits for Children
Investing in FD has different benefits according to the time at which parents have invested. For example, if they have invested at the time when their child’s age is 3-5 years – they have different goals and priorities. As the child grows, he/she would start showing interest towards a particular subject. Hence, if they invest at a time when the child is of 12-14 years – their priorities would differ.
Increasing inflation rates affect the amount you save every month. Let us take the current scenario of inflation. if your targeted accumulated amount is 25 Lakhs – you would have to save only around Rs. 5000 per month. That is the case, if you would start investing now. The same saving can go up to Rs. 10,000 per month in the next 5 years. This means, as you delay your investment, your investment amount also increases.
The ownership of the FD opened under child’s name is with the child. However, the parents would be operating all the dividends and interest earned through their bank account.
There are many FD schemes which allow parents to save and invest money to secure their children’s future. These are no different to other regular schemes. However, till the child reaches a certain age, the parents would be in charge of that account. Moreover, some schemes also provide insurance. These include:
PNB Balika Shiksha FD: This fixed deposit scheme is only for girls. Girl students of 8th standard qualify for this scheme. Whether they belong to SC/ST or not – they are eligible. Once they are 18 years of age, they can withdraw amount from it.
Allahabad Bank Shishu Mangal: This fixed deposit scheme is for the minors aged between 1-15 years.
FDs already have tax benefits under Section 80C of the Income Tax Act. In case of child’s FD – the taxable income gets clubbed with the child’s income. Before the child reaches the age of maturity which is 18 years – he/she is a minor. This gives the benefit of claiming an exempted Rs. 1500 from the clubbed income under the Section 10(32). However, if this income is earned by a minor through his/her special talent and skills – it doesn’t get clubbed with parents’ income.
In that case, the minor would be liable to pay his/her own income tax. If the mother and the father, both are working – their child’s income gets clubbed with the one who has higher income. However, as the child reaches the age of 18 years – he/she is separately charged for the income earned by him/her.