Saving for Her

Want to keep that smile on the face of your dear one going? This Women’s Day, we detail 4 investment options that can help secure your daughter’s future

ULIP - Edelweiss Tokio Wealth Plus: Rising star


Dhuraivel Gunasekaran


Unit Linked Investment Plans (ULIPs) are also an option if you want to secure the future of your daughter against exigencies and save some money for her future. Our pick in this category is ‘Edelweiss Tokio Wealth Plus.’ The plan offers policy holders a life cover and a return on investment through equity and fixed income instruments.

The plan provides an additional feature called “Rising Star Benefit” to secure the future financial needs of the child. You need to choose this option at the time of policy inception itself.

When you choose the ‘Rising Star Benefit’, you (the parent) become the policyholder and the child the ‘life insured’ under the policy. The policy provides life cover for both parent and child. In the unfortunate event of the parent’s death, a lump-sum will be paid to the child immediately. This is a multiple of the premium. Depending on the age of the policyholder at the time of the inception of the policy, the lumpsum is 10/9/5/4 times the premium (for age 18-40, 41 to 44, 45 to 50, 51 to 55 respectively).

The highlight is that after the death of the parent, the policy will continue to be in force (though no future premium will be required to be paid) and an amount equal to the sum of all the future premiums will be credited to the fund value. This helps the fund value grow faster due to the power of compounding. Normally, in child ULIPs, the insurers invest the premiums in the fund only when they fall due. However, relevant charges such as fund management charges and mortality charges for the child will continue to be levied as and when due by cancellation of units.

On maturity, the fund value will be paid to the child. In the event of the death of the child preceding the parent before maturity, the insurer will pay the sum assured or the fund value, whichever is higher at that point to the parent or nominee.

Fund options

The plan offers two investment strategies; 1) Life stage and duration-based strategy and 2) Self-managed strategy.

The life stage and duration-based strategy is a pre-defined formula-driven investment solution suitable for novice investors investing in equity large-cap and bond fund.

Under the ‘self-managed strategy’, the policy holder is allowed to invest in any of the five funds –equity large-cap, equity top 250, equity mid-cap, bond and managed fund. The plan allows unlimited switches among funds free of cost.

Additional allocation

An attractive feature of the plan is that it provides additional allocation every year starting from the first policy year till the end of the premium paying term.

Though it is similar to loyalty additions of other insurers, the quantum of allocation in this plan is higher; one per cent of the annualised premium every year for the first five years. From the sixth policy year, the additions are called ‘premium booster’ complementing three, five and seven per cent in the corresponding 6-10, 11-15 and 16-20 policy years respectively. Hence, the additional allocations to the policy with 20-year tenure is equivalent to 80 per cent of the one-year premium.

Lower charges

Edelweiss Tokio Life Wealth Plus is cheaper than standard ULIPs. The premium allocation charges, policy administration charges, switching charges, premium redirection charges and partial withdrawal charges are nil. The fund management charge of 1.35 per cent for equity funds is lower than the average expense ratio of the direct equity diversified mutual funds, which was 1.45 per cent (as on January 2017).

Investors with a high risk appetite with long-term financial goal for children can consider this plan and choose the equity funds. You can check if the insurance cover under the plan is adequate or else, take a separate term insurance policy.



Sovereign Gold Bonds: Bonding with gold, the smart way


Rajalakshmi Nirmal

Are you buying gold jewellery today to gift your daughter on her wedding which is a long time away?

Jewellery is the most expensive way of buying gold. What if trends change and your daughter doesn’t like what you have bought today?

At the time of purchase, you cough up 10-15 percentage extra for each gram and when you trade old for new, you again lose 5-10 percentage on ‘wastage’ on old gold.

There is a smarter way to buy gold.

Sovereign gold bonds, issued by the Government, are a proxy to investing in physical gold.

These can be purchased from banks, the Stock Holding Corporation of India, designated post offices and the National Stock Exchange of India and the Bombay Stock Exchange when the issue is open. The bonds track the international price of gold.

When prices go up, your investment value too rises. The investment tenure of these bonds is eight years with premature exit allowed after the fifth year.


You can redeem your investment in these bonds once they get listed on the stock exchanges within a fortnight of the close of the issue. When you exit, for each unit of the bond, you will get the market price of a gram of gold.

The advantage with these bonds is that, there are no additional charges. You don’t cough up for the ‘making charge’ or ‘wastage’, which you will do if you buy gold coins or jewellery. And, unlike physical gold where you incur a cost for safe-keeping by paying for a bank locker, with the bonds, you can be worry free. They can be stored in the demat account with your other investments.

Among the paper form of gold investments too, sovereign gold bonds are the best.

In gold ETFs, there is a fund management fee, which reduces your overall returns on the yellow metal, but in sovereign gold bonds, there is no such charge.

The key attraction is that the sovereign gold bonds come with a coupon of 2.5 per cent per annum, which means when gold prices go up during the tenor of the bond, you get the twin benefits of price gain as well as interest, and when gold prices fall, you are not impacted as much as your peers who invested in physical gold, as you will get the coupon on the bond.

How to invest

One can invest up to a maximum of 4 kg gold (minimum is 1 gram) in a financial year (including investments made through the secondary market for the bond). When the issue is open, the bond issue price details can be found on the RBI’s website. In the 2017-18 Series-III sovereign gold bonds, which were open for subscription till end December 2017, between Monday and Wednesday of every week, there was a discount of ₹50 gm on the issue price for those investing in these bonds online. Currently, the issue is closed. Those desirous of investing should look at buying it from the secondary market.

Interest payments you receive from these bonds are taxable, but capital gains on redemption (if held till maturity) are tax exempt.

Buying from the secondary market entails brokerage charges.

The one fact you will have to note is that in the secondary market, the liquidity in these bonds is low. If your investment horizon is only one to two years, it is not a great idea to look at investing in these bonds. Based on the demand-supply of these units, prices in the secondary market trade at premium/discount to spot prices.


Sukanya Samriddhi Yojana: Safe and rewarding


Anand Kalyanaraman


If you are fortunate to be a parent or guardian of a girl child less than 10 years of age, the Sukanya Samriddhi Yojana should be in your list of must-have investments. Attractive interest rate, compounding of interest, and backing by the Government make the Sukanya Samriddhi Yojana among the best and safest ways to build a tidy corpus for the education and wedding of your daughters.

You have to invest at least ₹1,000 a year and can go up to ₹1.5 lakh for each girl child. One account can be opened for a girl child, and accounts can be opened for maximum two girls in a family, including adopted children aged less than 10 years.

Deposits can be made in the account each year for 15 years from the date of account opening, and the account will mature on completion of 21 years from the date of opening. Interest will accrue in the account every year till maturity, not after. Any number of deposits can be done in a year, and deposits made until the 10th of each month are eligible for interest for that month.

Rate advantage

To encourage savings for the girl child, the interest rate offered on the Sukanya Samriddhi Yojana is higher than most other fixed income options. From 9.2 per cent during 2015-16, the rates on the Sukanya Samriddhi deposits have come down to 8.1 per cent per annum for the January to March 2018 quarter. But even this handsomely beats what is currently being offered on bank fixed deposits (less than 7 per cent) and the Public Provident Fund (7.6 per cent).

The superior rate advantage will likely continue. The interest rate on the Sukanya Samriddhi deposits is reset quarterly, and the new rates announced each quarter will apply to the accumulated corpus. Though rates are reset quarterly, compounding happens on a yearly basis.

Exempt from tax

Not just higher interest rates, the Sukanya Samriddhi Yojana also enjoys high preferential tax treatment. Investment in the account is eligible for tax deduction under Section 80C up to ₹1.5 lakh a year. Also, interest earnings and the maturity amount are exempt from tax. This places the Sukanya Samriddhi Scheme in the exalted EEE (exempt-exempt-exempt) category of investments. These tax breaks enhance the effective return of the scheme. Note though that deposit in excess of ₹1.5 lakh in a year will not earn interest; such excess amount can be withdrawn any time.

Withdrawal for higher education is allowed if the girl has turned 18 or has passed 10th standard, whichever is earlier. But such withdrawal is allowed only up to 50 per cent of the balance in the account at the end of the preceding financial year. Closure of account and withdrawal for marriage is allowed after the girl turns 18.

Make sure to deposit the minimum amount of ₹1,000 each year; else, the account will be considered as one under default. This can be regularised by paying a penalty of ₹50 for each year of default, along with the minimum amount for each such year. But if the default is not regularised within 15 years of the account opening, all the deposits in an account under default, including those made prior to the default date, will earn only the post-office savings bank interest rate. This is quite harsh. But there is an exception — if the default in yearly payment is due to the death of the guardian of the account holder, the high interest rate will continue to apply.

Bottomline: Sukanya Samriddhi Yojana can generate a tidy, tax-free sum for your daughter. Say, the rate remains at 8.1 per cent and, each year, the maximum investment of ₹1,50,000 is deployed.

After 15 years of deposits and holding for the remaining period till 21 years from the account opening, the accumulated balance will be about ₹71 lakh.


HDFC Children’s Gift Fund: The MF route


K Venkatasubramanian


You can certainly help your little one’s dreams come true , if you plan early and invest wisely.

Among a range of alternatives available for long-term investments, HDFC Children’s Gift, a balanced mutual fund, is a moderate-risk avenue to achieve goals with a long horizon for superior returns.

The scheme invests in a blend of equity and debt, with a strong tilt towards the former. HDFC Children’s Gift has delivered better returns than its benchmark as well as even quality equity funds over a 10-year time-frame.

Consistent outperformer

The fund has managed to deliver consistent returns ahead of its benchmark — CRISIL Hybrid 35+65 - Aggressive Index — over one, three and five-year time frames. Its level of out-performance has been quite healthy, to the tune of 3-5 percentage points.

Over the last 10 years, HDFC Children’s Gift has delivered 14.9 per cent annual returns, which were much higher than peers such as ICICI Pru Child Care - Study Plan and SBI Magnum Children Benefit plan.

The returns were also higher than what the best equity funds delivered during this period.

An investor choosing the SIP route would have been able to generate 17.6 per cent returns in the last 10 years, making it highly suitable for long-term goals.

Across market cycles, the fund has delivered consistently.

Moderate risk in portfolio

The equity portion in HDFC Children’s Gift has hovered around 70-73 per cent over the years. Barring the top few stocks, in which exposure has been to the tune of 4-6 per cent, investments are highly diffused.

Some 50-60 stocks are part of the scheme most of the time. Large-cap stocks from the Sensex or Nifty dominate the investment pie.

The exposure to mid-cap stocks has been tempered over the last few years. From forming a third of the portfolio a few years ago, mid-cap stocks accounted for only 20-22 per cent in recent times. Thus, the risk levels have come down.

In the debt portion, the fund takes a safe approach with investment in government securities, or AAA, AA+ and AA rated bonds/NCDs of PFC, Tata Motors Finance, Tata Sons and SBI.

During volatile market conditions, the fund increases the cash position to about 5-7 per cent.

Churning of the portfolio is not vigorous, though exposure to under performing segments is pruned; pharma and software have been cases in the point over the past one year.

Investing for the child

There are two options — with and without a lock-in period. The first is with a lock-in period of three years or if you are investing for your child, until she turns 18, whichever happens later.

There are no exit loads in this option, though the investments are locked in till the condition mentioned earlier is met.

There is also another option without the lock-in. In case this option is taken, withdrawals for the first three years would attract an exit load of 3 to 1 per cent.

That is, an exit after one year would entail an exit load of 3 per cent, and so on. Units sold after a three-year period will have no exit loads.

As a part of your asset allocation, HDFC Children’s Gift must find a place in your core portfolio for funding a goal related to your child.


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