From MF to PPF: How to start your newborn investment journey

Parents can start investing toward these long-term goals immediately after giving birth. You can do so using your own bank account or open a new bank account for your child. Nowadays, many parents prefer to open a separate account for their children and invest there. The child will have access to that investment even after she turns 18.

Besides investments, it is also important for parents to add a newborn to their medical policy. This will help cover the cost of any emergency medical treatment your child may need.

Here’s how new parents can start investing now for their children’s future financial needs.

Proof: Aadhaar and PAN

Birth certificate is essential to obtain Aadhaar ID or PAN for the newborn. Registration for an Aadhaar ID is easy and can be done at any of the permanent Aadhaar centres. The details (phone number, email ID, address) available in the parent’s Aadhaar will be added to the newborn’s Aadhaar. Only a photo of the newborn is taken at the time of registration, and biometric information is obtained after the child reaches her 5th birthday. .

For PAN card, parents have to submit an application (Form 49A) to NSDL (National Securities Depository, NSDL’s Pune office) along with supporting documents. These documents include proof of the newborn’s address, identity card, and date of birth.

Start with your bank account

Parents can use their own bank account or open a bank account in their child’s name. If the investment is made through a demat account, a bank account for the minor (a joint account where one of the parents is the guardian and is considered as the second account holder) is mandatory. This bank account can also be used to deposit cash gifted to your child.

Opening a bank account for a minor is a simple process. All you need is the child’s birth certificate, parent’s PAN (Permanent Account Number) and Aadhaar number as proof of address. If the parent has an existing account with the same bank, PAN and Aadhaar are not required.

Different banks have different terms and conditions for minor savings accounts. First, the minimum average balance (MAB) requirement can be one of the following ranges: INR2,500 and INR10,000.

mutual funds

Parents or guardians can invest in a minor’s MF account through their own bank. However, the redemption proceeds will only be transferred to the minor’s bank account.

To open an MF account, you will need to produce your child’s birth certificate to prove their age and relationship to a parent or legal guardian. In addition to this, you will need to submit a canceled check for the child’s or parent’s bank account.

Mumbai-based Sneha Jain, 36, created separate bank accounts for her six-and-a-half-year-old daughter and four-year-old son. She has invested in MFs held in her children’s names since they were six months old. She makes the following investments per month for each of her children: INR30,000 through Systematic Investment Plan (SIP) from your bank account.

Jain, who works for an asset management company, says she wants to stick to MF for her children’s long-term goals. “I chose equity funds for each of my children, namely multi-cap and children’s funds. Equity funds perform well over long periods of time as the effects of market-linked volatility are evened out over time. ,” she says. Children’s funds come with high exit loads, discouraging parents from making early redemptions.

Jainism also invested INRDonate $5,000 every month to Sukanya Samriddhi Yojana (SSY) for my daughter.

SSY and public provident fund

An SSY account can be opened at any time from the birth of a girl until she turns 10 years old.You can open an account with a minimum investment amount INR250, max INRYou can deposit 1.5 million yen in one fiscal year. The government recently increased the interest rate on SSY deposits from 8% to 8.2%.

You can open an SSY account at a bank or post office. Parents will have to submit their child’s birth certificate and their own KYC (Know Your Customer) documents such as PAN and Aadhaar. You can deposit money into your SSY account for 15 years. This account matures 21 years after opening. If a girl marries before the age of 21, her account will be closed.

Parents can also open a Public Provident Fund (PPF) account for their children. The documents required in this case are the same as those for SSY.

Minimum deposit amount INR100 is required to activate your PPF account. Annual contributions can be anywhere within the following ranges: INR500 and INR15,000. The current interest rate offered by PPF is 7.1%.

One benefit of starting a PPF account early is that by the time a child turns 18, the mandatory 15-year lock-in on a PPF account has expired and the child has to decide whether to close or continue the account. It’s possible.

Both SSY and PPF fall under the EEE (exempt-exempt-exempt) tax category. Therefore, parents funding these accounts can claim a tax deduction (up to the total limit). INR1.5 million under section 80C). The interest earned is tax-free and the maturity amount is also tax-free.

Money

Often the gifts that parents receive on behalf of their newborn are in the form of gold coins or gold bars. If parents don’t feel comfortable storing gold at home, they can opt for digital gold investing.

Jay Patel, 29, based in Ahmedabad, said he has been investing one tola (12 grams) in sovereign gold bonds (SGB) every year for the last few years for his three-year-old baby. He buys his SGB unit from his account and transfers money to his daughter’s demat account. Patel, who works as a research analyst at a brokerage firm, used his daughter’s demat account to gift her shares and invest in initial public offerings (IPOs) as well as planned investment plans (SIPs). I do things like that. INR25,000 in Flexicap Mutual Fund.

“As your daughter grows, these investments will grow as well. This will allow you to have a conversation with her about the importance of saving and investing,” says Patel.

A minor’s demat account run by a parent cannot be used to purchase shares until the child reaches the age of 18, but the parent can transfer the shares to this account as a gift. Demat accounts for minors can be opened through securities companies. For this purpose, the child must have both PAN and Aadhaar.

health risks

Bengaluru-based Ashish Malhotra, 39, has been investing since his seven-year-old son was six months old. Fintech professionals aim to INR40 million corpus of stock MF for his children. Mr. Malhotra plans to use this corpus for his son’s higher education and wants his son’s investments to remain independent. Therefore, his son has a separate minor bank account and his MF folio.

Recent health scares have caused Malhotra to consider her health insurance options more seriously. “Our son had to have surgery last year. Luckily we had a suitable family floater plan that covered the cost. But now I have it… I’m trying INR“This plan has a super extra $50 million just for him,” he says.

Malhotra says she doesn’t want to be in a situation where a health emergency could erode her son’s investment portfolio. A super top-up is a health insurance policy that kicks in after your hospital bill exceeds your deductible and can be paid for through your existing personal or employer insurance.

For Malhotra, INR50 million yen on his family’s floater will take effect after deductions are deducted. INRIt’s over 50,000.

Financial experts say parents should add newborns to their existing medical insurance. If your parents already have floaters in their family, they should notify their insurance company. Newborns can be added to their parents’ existing health insurance after 90 days. If your parents have individual health insurance, you can turn it into a family floater.

Salary-earning parents must notify their employer to add their child to the company’s health insurance plan. Newborns are usually covered from day one under your employer’s policy. Parents must also add the newborn as a holder on the life insurance policy.

Tax implications

Capital gains and income from investments made in the newborn’s name will overlap with the income of the higher-earning parents.

Nitesh Buddhadev, founder of Nimit Consultancy, says investing in a child’s name not only deters parents from early redemption but also helps in terms of taxes.

“If a child redeems an investment after reaching the age of 18, the capital gains will be taxed on the child’s PAN and not on the parent’s PAN. “This is also why it is preferable not to invest in products that generate profits or interest; any income earned from such investments before the child turns 18 will still be taxed in the parents’ hands,” he points out. . INRYou can receive a tax exemption of 1,500 yen.

tightrope walking

While it’s important to plan for your child’s future, parents should also continue to plan for their own goals. “Parents should keep in mind that higher education and their children’s weddings are important goals, but their retirement corpus will last for a long time (e.g. 20-25 years) and will continue to grow after adjusting for future inflation. Therefore, while planning for your child’s future, you should not lose sight of your personal goals,” says Kalpesh Ashar, Founder, Full Circle Financial Planners and Advisors.