Save TAX on SIP Returns

Save TAX on SIP Returns

One of the most essential financial goals for each parent is to invest in order to pay for the higher education and marriage of their children. You have a choice between holding such investments in your own name or the child’s name.

It is practical to hold investments in your name and designate them to particular objectives, but holding investments in the child’s name has advantages of its own.

  1. Having a separate investment account in a child’s name aids in developing their “savings” habits. They can take delight in saving the tiny financial gifts they get for holidays or when their grandparents and other relatives visit. Additionally, it aids in their comprehension of how regular investment saves yields funds for usage in the future.
  2. Investments made in a child’s name are more tax advantageous. The fund that has been accumulated in the child’s name will be deemed her own once she reaches adulthood. The earnings are not combined with those of the parents. The only one who pays taxes on them is the child. Children typically have no additional sources of income; thus, their tax obligations may be minimal or non-existent, but they are almost always lower than those of their parents, who may be a high tax rate.                                                  

Assuming the interest rate of 7.5% if you invest Rs. 10,000 per month for 5 years then,

If invested the same amount of Lumpsum then,

  1. A more disciplined approach to investment for a child’s financial aspirations is also aided by investment in the child’s name. It prevents the temptation to use money set aside for a child’s future needs when an emergency arises.
  1. A youngster who learns the discipline of SIP deduction from their savings account as they become older is also more likely to keep up this discipline once they start working and can deduct it from their pay.

It is advised to open a bank account in the minor child’s name and make investments through that account for investments made in their name. Additionally, a bank account in the child’s name is required because only the child’s bank account will receive the redemption proceeds.

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