Diwali can be an opportunity for parents to give their children a gift that offers benefits long after the festivities are over. Rather than limiting gifts to cash or conventional presents, parents can consider investing in fixed deposits (FDs) or mutual funds in their children’s names.
Such investments can help build a financial cushion for future needs while introducing children to the habit of saving and investing early. However, choosing between the two depends on factors such as the child’s age, financial goals and the level of risk parents are willing to take.
Fixed Deposits
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
An FD may appeal to parents who want to give their children a financial gift without exposing the principal to market fluctuations. Since the interest rate is fixed at the time of booking, the investment offers greater clarity on potential earnings. The accumulated amount could eventually be used to fund education or other important milestones.
Choosing the right maturity period is essential. Parents need to assess when the child is likely to require the funds, as early withdrawal can result in penalties and lower returns.Â
ALSO READ: Gold Bonds Bought On Stock Exchanges: Why Is Their Tax Treatment Different?
Mutual Funds
Unlike traditional deposits, mutual funds offer market-linked returns, making them an option for parents seeking to build a larger corpus over an extended period. Equity funds, in particular, can be considered for financial goals that are several years away, as they provide exposure to the potential growth of listed companies.
Parents have a range of schemes to choose from, including diversified equity and debt funds. The decision should take into account the family’s financial priorities and comfort with market risk. Debt funds may offer comparatively lower volatility, but their returns are not assured and the invested amount can also fluctuate.
Cash
For parents who want to keep their Diwali gifting simple, giving cash remains a convenient choice. Children get the freedom to decide how they want to use the money, making the gift particularly appealing to younger recipients.
Parents can turn this into a practical money lesson by encouraging children to allocate the amount towards three purposes: spending, setting money aside and investing for the future. Learning to distribute money between these priorities at an early age can help develop financial discipline and responsible spending habits.
Finding The Right Festive Mix
Each gifting option serves a different purpose, making the decision largely dependent on a family’s financial priorities. An FD offers greater predictability and may suit goals that are relatively close. Mutual funds provide an opportunity to participate in market growth over a longer period, although returns are not assured. Cash remains useful for immediate expenses and gives children greater control over their money.
A combination of these instruments could offer a more balanced approach. Parents can hand over some cash for immediate use, earmark an FD for planned expenses and direct a portion of the gift towards mutual funds for future requirements. Beyond the monetary value, such decisions can help children develop an understanding of financial planning from an early age.
ALSO READ: Your Salary Account Is Not A Savings Account: Six Bank Charges You May Be Ignoring
Essential Business Intelligence,
Sharp Market Insights,
Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
