Best investment option for minor child ? Parents want to help

POSTED BY Raja ON January 9, 2014 1:23 pm COMMENTS (3)

My parents want to save money for my child who is a minor. I do not want to go for any child plan as I dont see much benefit in those plans. I would rather opt for a term insurance and some other means of direct investment like MF/PPF/RD etc. I want suggestions on what is the best avenue

1) Open a PPF account for minor. I will be the guardian. I have read that the combined investment limit of my own PPF and minor’s PPF account is 1L per annum and investment into the minor account will be regarded as my income and will have tax implications. So If my parents put money into that, will I have to pay tax on it?

2) Recurring deposit where me or my parents can regularly put money in. What are the tax implications?

3) Fixed deposit – made by me or my parents on childs name. What are the tax implications?

4) Some SIP

Please provide suggestions based on your experience

3 replies on this article “Best investment option for minor child ? Parents want to help”

  1. ashalanshu says:

    Dear Raja, is it one time investment or mly or yly investment from your parents?

    Thanks

    Ashal

  2. Ashish Garg says:

    Hi,

    I suggest let your parents invest in their own name (except PPF where they should invest in your child’s name and you get the tax saving benefits). Its basically good for you that without investing your own money you can avail of the tax benefit on the amount invested in PPF.

    As for other avenues such as RD / FD, wherein their is no tax benefit to you, let your parents invest in their own name, I hope they must be in the senior citizen category. This way, when they invest in their own name, interest rates are 0.5% higher than if invested directly in your child’s name. Also, they can make your child as nominee in these investments. Since she/he is a minor, your name can be added as a guardian to her/him.

    Now since these investments are originally in their name they will be responsible for the tax on income generated through the investment and if they fall in Senior Citizen category, they again get a better relief in income tax slabs than what you would have got.

    MF SIP can be in your child’s name with you as guardian and investment can be made regularly through his or your account.

    Ashish Garg

  3. 1. Your parents can put the money in PPF account of your minor child. you do not have to pay any tax on it , but you will only be able to take tax benefit on maximum 1 lac amount for your contributions in your own PPF + Child.

    2. FD interest is taxable at your own tax slabs , no tax benefit here

    3. same as FD .

    4. I suggest Tax saving Mutual funds in the name of Child .

    Manish

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