To secure their child’s future, parents generally invest funds in child-oriented life insurance plans. A child investment plan is designed to meet the future financial requirements of a child by providing dual benefits of savings & insurance, hence leading to the creation of wealth. The corpus accumulated can be used for a child’s education, marriage, or any other additional requirements, even in the absence of a parent.
A recurring deposit for a minor child is the easiest way to secure funds for your child’s future & build long-term savings. This includes a small amount to be deposited every month, offering stable & guaranteed returns at maturity. For parents seeking savings for their daughter’s education & marriage purposes, a recurring deposit can be considered among the Best Investment Plan for a Girl Child, along with certain schemes like Sukanya Samridhi Yojana.
Eligibility Criteria
Provided are the eligibility parameters to be met to open a recurring deposit account:
- Parents or legal guardians can open a recurring deposit account.
- It should be in the name of their minor child.
- Minors who are 10 years of age or younger can get a recurring deposit account opened, but under the guardianship of their legal or natural guardian.
- Either parents or guardians will manage this account till the minor child attains majority.
Steps to Open a Recurring Deposit Account
Provide are the steps to be followed to open a recurring deposit account:
Step 1: Choose the Bank or Financial Institution
Conduct thorough research & choose a bank or a financial institution that provides an option to open a recurring deposit with them. Also, check whether they provide flexible terms & conditions along with attractive interest rates.
Step 2: Gather Required Documents
Gather all the relevant documents required to be submitted, i.e. the birth certificate of your child, address proof, identity proof, etc.
Step 3: Opening the RD Account
To open an RD account, there are two options, namely online or offline. So, either visit the bank or apply online & complete the application form. This will include designating the minor as the primary account holder & providing the details of the guardian or the joint holder.
Step 4: Deposit Amount & Tenure
Now, decide the tenure of the recurring deposit along with the monthly instalment amount. The amount should be such that it well aligns with your budget & future financial objectives.
Step 5: Nomination & Joint Holder:
Till the time your child attains majority, you should designate either a guardian or a joint holder of the account who can manage this account. The complete details, along with the signature, should be provided to complete the process.
Step 6: Interest & Taxation:
You should learn about the tax implications & the interest rate that will be offered to have a better understanding. The interest received will be taxable under the Income Tax slab of the Income Tax Act, 1961, of the guardian designated.
Step 7: Monitor the Investment:
Review & monitor your investments in terms of their growth, timely payment of instalments, interest amount, & other relevant factors.
Documents Required
Provided below is the list of documents required to be provided while opening a recurring deposit:
- Account Opening Form
- Birth Certificate of Minor Child
- Photograph of Minor Child
- Address proof of Parent or Guardian – Utility Bills, driving license, aadhar card, PAN, voter ID, etc.
- Identity Proof of Parent or Guardian – Voter ID, Aadhar Card, PAN Card, Driving License.
Benefits of a Recurring Deposit Account
Provided are the benefits of a recurring deposit account:
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Simple Investment Product:
This financial product is one of the easiest & simplest to underst&, making it a great starting point for your child’s investment journey.
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Financial Security:
Recurring deposits are considered a long-term Investment Plan, ensuring financial security & allowing parents to fulfil their children’s future desires.
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Guaranteed Returns:
Recurring deposits offer guaranteed & assured returns, making them different from equity & mutual funds.
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Flexible Tenure:
It offers flexibility in selecting the investment tenure, i.e. short, medium, or long term, ranging from 6 months to 10 years, depending upon the financial objectives.
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Low Minimum Deposit:
For public sector banks, the minimum deposit amount is INR 100, while for private banks, it is between INR 500 & INR 1000.
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Premature Closure:
This plan offers liquidity of funds in the event of emergencies, by providing an option for premature withdrawal to individuals.
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Loan Against RD:
It also provides you with an option to avail a loan of up to 90-95% of your balance against recurring deposits.
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Flexible RD Options:
It allows you to deposit sometimes a larger amount & sometimes miss instalments, providing flexibility without any penalty.
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Encourages Saving Habits:
This investment option encourages individuals to save more for their children from an early stage, making them learn the importance of investment & financial planning.
How to Use an RD Calculator for Minors?
Provided are the steps to use an RD calculator for minors:
Step 1: Search a Calculator
The calculator is easily available on the bank’s official website.
Step 2: Enter the Details
[Provide the basic details, such as amount to be deposited, desired policy tenure, expected interest rate, etc.
Step 3: Calculate
It will then calculate the maturity amount based on the details entered.
M = R [(1 + i) ^ n – 1] / (1 – (1 + I) ^ (-1/3)],
Where,
M = Maturity Value
R = Monthly EMI
n = Number of Quarters
i = Interest Rate
Let us underst& the same with an example,
Mr. X deposited INR 5000 in a recurring deposit account opened with a bank at an interest rate of 7.5% per annum. The amount to be received on maturity can be calculated as follows:
M = R [(1 + i) ^ n – 1] / (1 – (1 + I) ^ (-1/3)],
= 5000 [(1+0.075) ^ 4 -1] / (1-(1+0.075) ^ (-1/3)]
= INR 62,478.46
Conclusion
Recurring deposits are best suited for those individuals who want to invest in small portions. Opening a recurring deposit account in the name of a minor enables financial security & long-term advantages. Parents can provide their children with a brighter future by investing at an early stage, planning, discipline, monitoring, & the power of compounding, thereby securing a sound financial future. RDs offer a competitive rate of interest & minimal documentation. Hence, they serve as a hassle-free & safe investment choice, stimulating financial discipline.