best investment plan for your child dreams

Best Investment Plan to Support Your Child's Dreams

Investment planning options that help parents build funds for a child’s education and long-term goals

Written by : Knowledge Centre Team

2025-12-22

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7 minutes read

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With the right environment and parental support, children can achieve greater heights and bigger dreams. So, if your child is showing signs of genius early on, it's never too early to prepare for their larger-than-life goals in the future. From higher education at a top university to post-graduation aspirations, the financial commitment can be significant, and it grows every year with inflation. To fulfil these goals, thankfully, there are child plans and other smart investment options that help.

Key Takeaways

  • A top undergraduate degree can cost ₹50 lakhs and post-graduation ₹84 lakhs, 15-19 years from now, at 3.5% inflation

  • PPF offers sovereign-backed, tax-free returns at 7.1% p.a., ideal for building a stable child education corpus over 15 years

  • SSY gives girl child parents 8.2% p.a. tax-free returns, one of the highest among government-backed small savings schemes

  • ULIPs combine life cover with market-linked growth and goal protection, making them a versatile single-plan education solution

  • Starting early and pairing investments with term insurance is the most effective way to protect your child's educational goals

How Much Does Higher Education Cost in India?

Before we get into the investment options, let’s get to know the financial goal a little better:

  • Higher education for your child can include both graduation and post-graduation

  • The most likely age to start a graduation course is 18-19 years for the child

  • The most likely age to start a post-graduation would be 21 to 23 years, depending on the length of the undergraduate course

Considering you are starting the investment for this enhanced goal when the child is 4 years of age, you will have approximately:

  • 15 years for undergraduate admission

  • 19 years for postgraduate admission

The average cost of education from the top universities for undergraduate courses is approximately ₹30 lakhs. The average cost of a post-graduation is about ₹50 lakhs in present terms. If you consider a low average inflation of 3.5% per annum, you will need:

  • ₹50 lakhs 15 years from now to cover the graduation expenses

  • ₹84 lakhs more, 19 years from now, for post-graduation costs

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Best Investment Plans for Your Child's Future

Now that we are clear about the goal, let’s have a look at the investment options that can help us achieve it:

Public Provident Fund (PPF):

Public Provident Fund is the safest investment option to fulfil your financial goals that are at least 15 years away from now. The salient points of using PPF for investing in your child’s undergraduate goal are:

  • Invest up to ₹1.5 lakhs every year

  • Enjoy a deduction of up to ₹1.5 lakhs every year under Section 123 of the Income Tax Act, 2025 (previously Section 80C of the Income Tax Act,1961)

  • Safe returns with a sovereign guarantee

  • Zero tax liability and tax-free maturity value

  • Current interest rate of 7.1% p.a., compounded annually

  • Get up to ₹45 lakhs with 15 years of investment and about ₹75 lakhs with 20 years

Limitations of PPF Investment:

While PPF is safe and good for stable long-term returns, they do pose a few limitations:

  • The maximum amount you can invest every year is limited to ₹1.5 lakhs (may change in the future as notified by the central government)

  • You must invest most of your annual installment at the beginning of the financial year to gain maximum interest.

  • The interest rates are variable and keep changing as reviewed quarterly and announced by the Ministry of Finance

  • After 15 years, you have the option to extend the account or withdraw immediately. In case of extension, you can only extend in batches of five years.

  • You cannot operate more than one PPF account, but you can open a separate account in the name of your minor child (However, the combined deposit across both accounts cannot exceed ₹1.5 lakhs in a financial year)

While PPF is a highly tax-efficient and safe investment, it may just fall short of your goal. Therefore, if you are using PPF to save for your child’s goal, you need to ensure two things:

  • Have another investment plan to fill the gap in your financial needs and the PPF corpus in the future

  • Add the goal value to your term insurance cover, so that your child can still meet her goal even if anything happens to you
Do you know

Did You Know?

44% of parents reported that their children's school fees have risen by 50-80% in just three years


Source: India Today

Strengthen Your Child's Future

Sukanya Samriddhi Yojana (SSY):

If the little genius is your daughter, you can also use the Sukanya Samriddhi Yojana (SSY) to invest in her educational goals. Launched under the Government of India's Beti Bachao Beti Padhao initiative, SSY investment is one of the most attractive long-term savings options exclusively for a girl child. If your daughter is under 10 years of age, you can open an SSY account in her name at any designated post office or authorised bank. Key features include:

  • Interest rate of 8.2% p.a., compounded annually, one of the highest among government-backed small savings schemes

  • Invest a minimum of ₹250 and a maximum of ₹1.5 lakhs per financial year

  • Triple tax benefit (EEE): deduction up to ₹1.5 lakhs under Section 123 of the Income Tax Act, 2025 (previously Section 80C), tax-free interest, and tax-free maturity proceeds

  • Account matures 21 years from the date of opening, or upon the girl's marriage after age 18

  • Partial withdrawal of up to 50% of the balance is permitted after the girl turns 18, to meet higher education expenses

  • Government-backed with a sovereign guarantee with zero credit risk

Limitations of SSY:

  • The account can only be opened for a girl child below the age of 10

  • A maximum of two SSY accounts is permitted per family (exceptions apply in the case of twins or triplets)

  • Deposits must be made for 15 years from the date of opening; no contributions are required for the remaining years until maturity

  • NRIs are not eligible to open or operate an SSY account

  • The investment limit of ₹1.5 lakhs p.a. is shared with PPF under Section 123 (previously Section 80C)

Unit Linked Insurance Plan:

Unit-Linked Insurance Plans are way more flexible than both PPF and guaranteed plans when it comes to investment. However, that does not affect the range of benefits in a ULIP plan. You can do a lot more with a ULIP plan than with a PPF and guaranteed plans.

Here are the benefits of using ULIP to save for your child’s higher education:

  • The choice to create an aggressive or safe portfolio:

    1. Add equity to the portfolio for long-term returns with market performance

    2. Create a safe portfolio with only the Gilt fund and corporate debt

  • Use automated strategies to manage your asset allocation and investment risk

  • Goal protection option to ensure that your child can meet her goal despite your untimely demise

  • No limits for maximum investment

  • Tax-free maturity value under Schedule II (Table S.No. 2) of the Income Tax Act, 2025 (or previously called Section 10(10D) of the ITA 1961), provided the annual premium across all ULIPs does not exceed ₹2.5 lakhs (applicable for policies issued on or after February 1, 2021)

  • Use a single ULIP plan to meet both graduation and post-graduation goals, using tax-free partial withdrawals

  • Bonus unit allocation for long-term investors and high premium contributions

Limitations with ULIP Investment:

ULIPs suffer a few limitations when it comes to annual investment and taxes. But, with minor tweaks, you can overcome these limitations easily. Here’s how:

  • Keeping the Investment Tax-free: For policies issued on or after February 1, 2021, the aggregate annual premium across all your ULIPs must not exceed ₹2.5 lakhs in any financial year during the policy term, to retain the tax exemption under Section 10(10D). Additionally, the annual premium in any financial year should not be greater than 10% of the sum assured of the policy; otherwise, you lose the tax protection of the scheme. To resolve this, you can opt for a slightly higher sum assured than 10 times your annual investment.

  • Partial Withdrawal Limits: You may face a limit to the amount you can withdraw during partial withdrawal from ULIPs.  ULIPs are the only investment you can use as a single investment option for your child’s goal. However, with other investments, you may need to combine more than one plan to achieve both graduation and post-graduation goals.

National Savings Certificate (NSC):

The National Savings Certificate (NSC) is a fixed-income, government-backed savings instrument available at post offices across India. While it is not exclusively designed for child education goals, its predictable returns and tax benefits make it a reliable supplementary option for conservative investors. Key benefits:

  • Current interest rate: 7.7% p.a., compounded annually but paid at maturity

  • Fixed 5-year maturity period, useful for medium-term education goal planning

  • Deduction up to ₹1.5 lakhs under Section 123 of the Income Tax Act, 2025 (previously Section 80C) on the invested amount

  • No maximum investment limit, unlike PPF, you can invest any amount

  • Sovereign-backed with zero default risk

  • The interest earned is deemed to be reinvested each year (except in the final year), making it eligible for Section 123 of the Income Tax Act, 2025 (previously 80C), for annual deduction

Limitations:

  • Maturity proceeds are taxable; the interest earned is added to your income and taxed as per your applicable slab rate

  • No partial withdrawal facility before the 5-year lock-in period

  • No life cover, must be paired with a term insurance plan for comprehensive goal protection

  • Better suited as a short-to-medium term debt component of your child's education portfolio, not a standalone long-term solution

Conclusion

Every parent wants the best for their child, but the key is starting early. Whether it is PPF, SSY, ULIP, or NSC, each option serves a purpose; what matters most is time in the market. The earlier you invest, the more compounding works in your favour and the lower your monthly burden.

At the same time, building an education fund is not just about returns. Adding a term insurance cover ensures your child’s goals stay protected, no matter what.

A balanced approach works best; a mix of stable, government-backed schemes and growth-oriented plans can help create a strong, inflation-ready education corpus.

Glossary

  1. PPF: A government-backed, 15-year savings scheme offering 7.1% p.a. tax-free returns under EEE status
  2. ULIP: A plan combining life insurance with market-linked investments, offering flexibility and tax benefits
  3. Section 123: An Income Tax Act 2025 provision allowing deductions up to ₹1.5 lakhs p.a. on qualifying investments
  4. Education Inflation: The rate at which education costs rise annually, typically outpacing general consumer price inflation
  5. Sukanya Samriddhi Yojana (SSY): A government scheme for girl children offering 8.2% p.a. interest with EEE tax benefits up to age 21
Glossary book
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FAQs

There is no single best plan. The right choice depends on your goal, risk appetite, and investment horizon. A combination of PPF or SSY for stability and a ULIP for market-linked growth and life cover often works best for long-term child education planning.

At a conservative education inflation of 3.5% p.a., you will need approximately ₹50 lakhs for undergraduate education 15 years from now, and ₹84 lakhs more for post-graduation 19 years from now. Starting early and investing consistently gives your corpus enough time to compound and meet these goals comfortably.

PPF is a safe and tax-efficient option, but its annual investment cap of ₹1.5 lakhs may limit the corpus you can build over 15 years. It is advisable to supplement PPF with another instrument, such as a ULIP or NSC, to bridge any shortfall in your education fund.

SSY currently offers one of the highest interest rates among government-backed schemes at 8.2% p.a., compounded annually, with full EEE tax benefits. It also allows partial withdrawal of up to 50% of the balance after the girl turns 18, specifically to meet higher education expenses.

ULIPs come with an inbuilt waiver of premium option, whereby the insurer continues to pay the remaining premiums on your behalf in the event of your early death. This ensures that the policy remains active and your child receives the full maturity corpus at the intended time, without any financial disruption.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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