Parents Alert: Tax-Saving Investments That Also Help With Children's Future

The cost of raising a child continues to rise. As such, many parents are seeking ways to safeguard their children's future without breaking the bank.

Several investment options not only build long-term wealth for your child but also offer valuable tax benefits. So, let's find out how you can plan smartly and save on taxes while doing it.

Parenthood comes with significant financial responsibility. From school fees to higher education and unforeseen medical needs, the expenses keep adding up. Starting early with structured investments helps you build a solid financial cushion.

Moreover, involving your children in understanding these investments instils financial discipline early on.

One of the most trusted government-backed savings tools, the PPF offers a 15-year lock-in period and attractive tax-free interest. Parents can open an account in their child's name with a combined annual cap of Rs 1.5 lakh across all PPF accounts.

Once the child turns 18, they can take over the account. It's a disciplined, low-risk way to accumulate a significant sum over time.

The SSY is specifically designed for the financial empowerment of girl children. If your daughter is under 10, you can open an account with as little as Rs 250 and deposit up to Rs 1.5 lakh in a financial year.

Offering interest rates around 8% to 9%, this scheme is one of the most lucrative tax-free investment options in India. The account matures after 21 years, with partial withdrawal allowed once the girl child turns 18.

If you’re looking for inflation-beating returns and have a higher risk appetite, equity mutual funds are worth considering. Large-cap funds, in particular, are suited for long-term goals like university fees 10 to 15 years down the line.

While market-linked, these funds benefit from long-term compounding and tax efficiency through Equity Linked Saving Schemes, which are also eligible for deductions under Section 80C of the Income Tax Act, 1961. However, the equity mutual funds could be suitable for investors with a high risk appetite.

Life insurance is more than just a safety net, it is also a smart investment choice. Whether you choose term insurance, which offers high cover at low cost, or savings-based plans, which offer guaranteed payouts at specific life stages, both come with tax advantages.

Premiums paid are eligible for deductions under Section 80C, and the maturity amount is generally tax-exempt under Section 10(10D) of the Income Tax Act.

The Unit Linked Insurance Plans offer a combination of investment and life cover. Parents can choose equity or debt fund options depending on their risk profile.

Though subject to market risks, ULIPs offer the potential for long-term growth and are tax-exempt under the right conditions. These schemes are particularly useful if you want the dual benefit of wealth accumulation and insurance protection in one product.