6 Monthly Savings Plans for Your Child's Future

Today, planning for a child’s education has become critical for parents. The cost of education has skyrocketed, making it essential to have a well-structured savings plan. Monthly saving plans provide parents a strategic approach to accumulating the resources required to provide a quality education for their children. This article discusses the six best monthly savings plans to help secure your child’s educational future.

The 6 Best Monthly Saving Plans

1. Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a long-term savings scheme backed by the government of India. It provides a lock-in period of 15 years and is designed to encourage savings among the public. PPF is an excellent option for parents looking to save for their child's education. With guaranteed returns and the power of compounding, the PPF can grow your savings significantly over time. Investments in PPF qualify for tax deductions under Section 80C of the Income Tax Act, providing further savings on your contributions.

Assume you invest ₹1,00,000 in PPF at an interest rate of 7.1% per annum. In two years, the interest accumulated over your PPF will be

• Year 1: Interest earned = ₹7,100. Total amount = ₹1,07,100
• Year 2: Interest earned = ₹7,100 + (7.1% of ₹7,100) = ₹7,601.1 (approximately). Total amount = ₹1,14,701.1

Notice how, in the second year, you're not just earning interest on your initial ₹1,00,000 but also on the ₹7,100 interest earned in the first year. This snowball effect accelerates over 15 years, leading to substantial wealth accumulation. Over 15 years, even with moderate contributions, the compounding effect can significantly amplify your initial investment, potentially growing it to more than double in value, depending on the prevailing interest rates.

2. Sukanya Samriddhi Yojana (SSY)

The Sukanya Samriddhi Yojana (SSY) is a government-backed saving scheme exclusively for girls to promote their education and welfare. SSY provides a higher interest rate than other traditional savings schemes, making it a compelling choice for saving towards a daughter’s education. Parents can open an SSY account with a minimum deposit, ensuring accessibility. Investments qualify for tax deductions under Section 80C, thus maximizing the benefits.

SSY is not just another savings scheme open to everyone; it is specifically designed for the girl child. SSY typically provides significantly higher interest rates than conventional savings schemes like bank fixed deposits (FDs) and often outperforms long-term options like the Public Provident Fund (PPF).

3. Unit Linked Insurance Plans (ULIPs)

ULIPs such as Shriram Life Wealth Pro plan combine insurance with investment, allowing parents to secure their child’s future while growing their savings in Equity or Debt Funds. These plans provide flexibility in the investment strategy and are ideal for those looking for a balanced approach.

Additionally, they provide life coverage, ensuring the family’s financial safety. While traditional savings accounts provide lower returns, ULIPs have the potential for higher returns, although they come with higher risks. The defining characteristic of a ULIP is its combination of life insurance coverage and market-linked investments. Simply put, a ULIP has both investment and insurance components clubbed together.

• Investment Component: A portion of your premium is invested in market-linked funds, which can be equity, debt, or a hybrid of both. This is where the potential for higher returns comes from. By participating in market movements, ULIPs aim to generate returns that can outpace traditional fixed-income options over the long term. However, this is not guaranteed and depends heavily on market performance.
• Insurance Component: The remaining portion of your premium provides Life Insurance coverage. This cover ensures financial protection for your family in case of your untimely demise during the policy term. This death benefit is crucial for securing your child's future, even in unforeseen circumstances.

4. Mutual Funds

Equity Mutual Funds generally yield higher returns over the long term and are desirable for growing a child’s education fund. Although Mutual Funds can provide growth through capital appreciation, they are subject to market risks. Parents must assess their risk tolerance before investing. Utilizing Systematic Investment Plans (SIPs) can help in disciplined investing. This method allows you to spread your investment over time and manage risks effectively.

Imagine you want to grow money for your child's education over many years. One way to do this is by investing in Equity Mutual Funds. Think of Equity Mutual Funds like a bag of money that is used to buy small pieces of many different companies (these small pieces are called stocks or shares). These companies are in all sorts of businesses, like making cars, selling groceries, or building houses.

Why can Equity Mutual Funds help your money grow bigger over time?

• Growing with the Economy: When the country's economy does well, businesses usually make more money. When companies make more money, the value of their stocks tends to go up. Equity Mutual Funds let you be a part of this growth. It's like owning tiny bits of many businesses that are growing along with the economy.
• Beating Price Rises (Inflation): Things get more expensive over time, called inflation. The price of education, like everything else, also goes up. Historically, investing in Equity Mutual Funds has given returns that are higher than the rate at which prices go up. This means your money grows fast enough to keep up with or even beat the rising costs of things, especially education. So, your money doesn't lose its value over time due to inflation.
• Money Makes More Money (Compounding): When your investments in Equity Mutual Funds make money (returns), you can put that money back in to buy even more stocks. Then, next time, you earn money not just on your original money, but also on the money you earned before. This is called compounding. It's like a snowball rolling down a hill- it gets bigger and bigger faster and faster. Over many years (like 10-15 years for education savings), this compounding effect in Equity Mutual Funds can really make your initial investment grow much, much bigger.

5. Shriram Life New Shri Vidya Plan

The Shriram Life New Shri Vidya Plan combines Life Insurance with savings. It provides coverage along with the benefits of a traditional Savings Plan. This plan helps accumulate funds for your child’s educational needs while ensuring a financial backup is available in case of unforeseen circumstances. Policyholders enjoy tax deductions under Section 80C, and survival benefits help ensure that the accumulated corpus can be utilized when required.

Think of the Shriram Life New Shri Vidya Plan like this: it's both a piggy bank and an umbrella for your child's future.

This plan helps you slowly save up money over time. It's like putting money in a piggy bank regularly. This saved money is meant to grow and become a good amount that you can use later when your child needs it for school, college, or other education costs. The money you invest is designed to be available around the time you might need it for your child's education milestones. So, when your child is ready for higher studies, the money you saved will be ready too. Life is unpredictable. So, this plan also acts like an umbrella. It includes Life Insurance. This means if something were to happen to you during the time you're saving with this plan, the insurance part kicks in. It makes sure there's still money available for your child's education, even if you're not there anymore. It's a financial backup plan for your family in case of bad luck. You get to save money and get life insurance all in one plan. It's convenient because you manage both things at once.

6. National Savings Certificates (NSC)

The National Savings Certificate (NSC) is a government-backed Fixed Income Savings Bond with a 5-year maturity period, providing a safe investment option favored by many parents. It is particularly beneficial for funding a child’s education, as it provides assured returns over time. In addition, investments in NSCs qualify for tax benefits under Section 80C, making it an attractive choice for those looking for tax-efficient savings strategies.

When selecting a saving plan for education, parents should consider their child’s future educational needs, estimating the financial requirements for different types of education. It’s also essential to evaluate your risk tolerance and investment horizon- higher-risk investments may provide better returns but come with potential losses. Regular contributions are key to growing savings over time, as consistent investments harness the power of compounding, leading to better returns and a more secure financial future for educational expenses.

Conclusion

Investing in the right savings plans is vital for parents aiming to secure their children's educational future. Options like the Shriram Life New Shri Vidya Plan and National Savings Certificates (NSC) provide promising benefits and are designed to meet different financial needs. In addition to these specific plans, understanding your child's future education needs, risk tolerance, and the importance of regular contributions will help you build a robust financial strategy toward successful education savings.