I would like to invest a lumpsum to secure my new born child's future for a period of 20 years. I want to invest in Sukanya Samriddhi Yojana for a monthly instalment of Rs 2000. What will be the best investment for 20 years with least risk?
It is good to start saving from now on for your newborn daughter. And the best way to do that is to invest in diversified equity mutual funds regularly through systematic investment plans (SIPs).
For example, if you start with a monthly investment of Rs 2,000 in mutual funds that earn 12 per cent, you can build a corpus worth Rs 18.4 lakh in twenty years with your total investment amounting to only Rs 4.8 lakh. You should transfer your equity investments to debt in order to lock-in the returns as you near your goal (by 2-3 years). This will protect your investments from eroding due to short-term volatility in equity markets.
The Sukanya Samriddhi Yojana (SSY) is a post office scheme meant to help parents save for their daughter's future. Currently, it offers a tax-free interest at the rate of 8.6%. Despite being reduced from the 9.1% it offered last year, it is still the highest among all post office saving schemes. This scheme also scores over other traditional options such as insurance plans and term deposits. If you invest Rs 2000/month in SSY for 20 years, assuming the rate of return remains 8.6%, you will gather a corpus of 12.28 lakhs. But since you have 20 years to go, balanced funds or equity funds will deliver much better returns. If you are risk-averse, you can use a 60:40 combination of equity funds and SSY.
To choose equity funds, you can refer to our list of Best Diversified Equity Funds.
For more insights on investing for children, you can read our article The Illusion of Children-Specific Products