The Best Investment Option for Your Child’s Future in India: Sukanya Samriddhi Account vs. Mutual Funds

Deciding on the best investment option for your child’s future can be a daunting task. After careful consideration, you might be tempted to buy an insurance plan with the intention of using the proceeds for her higher education. However, this approach is far from ideal. Instead, we recommend you start a business and keep learning how to make it more profitable over time. This way, you will have the resources to cover your child's higher education costs.

Introduction to the Sukanya Samriddhi Account

For female infants in India, the government has introduced the Sukanya Samriddhi Account, a new savings instrument designed to benefit the girl child. Launched by the Finance Minister Arun Jaitley in July, this account offers several advantages:

The account can be opened and operated by a legal or natural guardian until the girl reaches the age of 10. After the age of 10, the girl can operate the account herself. The account can be opened at a post office or a public sector bank. Deposits can be made by the guardian or any other person, with a minimum initial deposit of Rs 1000 and a maximum single deposit of Rs 150000 in a financial year.

Key Features of the Sukanya Samriddhi Account

Here are some key points to consider when opening a Sukanya Samriddhi Account:

Only one account can be opened per girl child, with birth certificates and identity/residence proof required. The account allows the guardian to open accounts for up to two girl children, unless twins or triplets are involved. The government determines the interest rate annually.

Comparing Insurance Policies to Mutual Funds

It is important to understand that using an insurance policy to invest is not the best strategy. Insurance policies are designed primarily to provide financial protection, not to generate substantial returns. Let's explore how mutual funds can better serve your investment goals for your child's future.

Mutual Funds: A Better Investment Option

Instead of relying on an insurance policy, consider investing in mutual funds, which offer higher potential returns. Here's how you can start:

Direct Plan Growth Option with Birla Equity Fund

The Birla Equity Fund is one diversified equity fund that can provide strong returns. By opting for the direct plan growth option and using a systematic investment plan (SIP), you can invest Rs 5000 per month for 20 years. Assuming a compound annual growth rate (CAGR) of 15%, here’s what you can expect at the end of 20 years:

Assumptions: Invest Rs 5000 per month. Assume a CAGR of 15%. Invest for 20 years.

Result: You will have approximately Rs 74.86 lakhs (Rs 748,625) at the end of 20 years.

Motilal Oswal Multicap 35 Fund

Another excellent option is the Motilal Oswal Multicap 35 Fund, which focuses on a diverse range of stocks with a moderate to large cap. Again, investing with a SIP method can yield impressive results, especially if you achieve a CAGR of 15% over 20 years.

Advantages of Mutual Funds

Higher potential returns compared to traditional savings instruments. Diversification across multiple securities to reduce risk. Professional management and access to expert advice. Regular contributions through SIP, making it easy to invest consistently.

Disclaimer

While mutual funds offer excellent potential for growth, it's important to remember that they are not risk-free. Market fluctuations can impact your investment. Always consult with a financial advisor before investing in mutual funds or any other investment vehicle.