For many kids, pocket money is their first taste of freedom and their first financial blunder. But making mistakes at ₹100 helps them avoid making mistakes at ₹1 lakh later. The sooner they learn, the better they will be at taking risks, being patient, and making decisions.

Let’s take a look at the key investing choices for minors in India right now in this article:

1. Fixed deposits and savings accounts

A savings account is frequently the first way to teach kids about money. You may open it in the child’s name, and most banks allow them to manage it independently when they reach 10. These accounts function similarly to ordinary savings accounts, although they typically have smaller limits and fewer benefits.

A parent or guardian can also create a fixed deposit (FD) in the name of a minor. These provide you a little more interest than savings accounts, usually between 6% and 8% depending on how long you keep them.

Some banks give out debit cards that limit how much you may spend or let you use UPI with parental controls. This lets students try out digital transactions, which is important in today’s environment.

Minimum donation: ₹0– ₹250

Returns: 2.5% to 5% (SB) and 6% to 8% (FD)

2. Demat account for a minor

You can create a demat account in your child’s name if you want to teach them about the stock market. Parents can give their kids account shares or mutual funds, but the youngster can’t buy or sell them on their own until they reach 18.

The youngster requires a PAN card, an Aadhaar card, and a bank account to start this kind of account. Once it’s set up, this becomes a long-term investment dashboard that also helps you file your taxes.

This is a terrific approach to teach people about long-term investment, compounding, and owning stocks. When the kid reaches 18, the account becomes a regular demat account with new KYC.

Minimum contribution: None

Returns: Linked to the market (around 12% per year on average)

There are no tax benefits.

3. Mutual funds for kids

You can also buy mutual funds in your child’s name directly. If they already have a bank account, they may set up SIPs and lump-sum investments to happen automatically. If not, you can invest from a guardian’s account on sites like MF Utility, but the money must always transfer to an account with the minor’s name when you sell.

This strategy is versatile and lets parents pick from a variety of fund types, such as equity, debt, hybrid, or ELSS (Equity Linked Saving Schemes), based on their goals. Section 80C gives tax breaks to ELSS funds, which have a three-year lock-in period.

Returns: Linked to the market (depends on the type of fund)

Lock-in: None (except for ELSS)

Tax benefits: ELSS is qualified under Section 80C.

4. Plans from the post office and the Sukanya Samriddhi Yojana

Conservative investors like post office programs because they are straightforward, reliable, and supported by the government. A guardian can create accounts in a child’s name for things like Recurring Deposits, National Savings Certificates (NSC), and Time Deposits.

The Sukanya Samriddhi Yojana is one of the best possibilities if you have a girl who is less than 10 years old. It now pays an interest rate of 8.2% per year, and you don’t have to pay taxes on it. You have to put money into the account for 15 years, and it will mature after 21 years.

If you’re planning for your child’s college tuition or other future costs, this plan is perfect. You may give as little as ₹250 a year.

Minimum contribution: ₹250 per year for Sukanya; other amounts vary.

Returns range from 4% to 8.2%, depending on the plan.

Lock-in: Sukanya: 21 years; others depend on what they buy

Tax breaks: Sukanya is eligible for 80C, and the interest is tax-free.

5. NPS Vatsalya

This one is a little out of the ordinary, but it’s worth thinking about if you want to be in the long run.

NPS Vatsalya is a variation of the National Pension System that is made for kids. You may start it with just ₹1,000 a year. The account becomes a regular NPS Tier-1 account when the kid turns 18.

You can’t take money out, and even when the investment period is over, 80% of the corpus must be put into an annuity. That makes it less about getting rich quickly and more about educating people how to plan for retirement and wait for things.

Minimum donation: ₹1,000 a year

Returns: Linked to the market (depends on how much equity and debt you have)

Benefits for taxes: Contributions are eligible under 80C

What you should not do: Buy kids’ insurance plans that are bundled

A warning. A lot of insurance firms provide kid plans that include both insurance and investing. People commonly call them “education” or “marriage” savings plans, but in truth, they have hefty costs, convoluted structures, and low returns.

A far easier plan is to buy term life insurance for yourself (to protect your child’s future) and then put the remainder of your money into one of the products listed above.

Last thought

At some point, your child will get their first job, make a mistake with money, or think twice before making a significant purchase. They won’t recall figures at that point; they’ll remember how money felt when they were kids. Whether it was hard to find or easy to find, spoken about or not, or seemed like a tool or a danger. That recollection will help them more than any formula. So, think about what type of connection with money you are discreetly passing on.

Chakravarthy V, Cofunder & Executive Director, Prime Wealth Finserv Pvt. Ltd.