Say the child is 8 years old and the planning is for his/her graduation. Options available are DSOPF/PPF, bank FDs/RDs, Sukanya Samriddhi Yojana (for daughter only), and equity. While DSOPF/PPF are safe, tax-free and Govt backed, they earn low interest which may barely cancel out inflation over this long period of time. Bank FDs/RDs are low interest, tax-inefficient options unsuitable for such a long-term investment. SSY is tax-efficient, good rate of interest today but rates fluctuate and it has a very rigid structure. Finally, it is equity investing only which will meet the requirements for this purpose. Direct stocks are not everybody’s cup of tea – tricky, exit/entry difficult to time, volatility, etc. On the other hand, mutual funds (MFs) are very flexible, tax-efficient, high returns investments managed by experts. So it is regular SIPs in good equity MFs which would suit everybody. The amount of SIPs should be increased yearly as income increases.
How to accumulate money for child’s higher studies?Sanjeev Govila