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My daughter is 3 years old and I earn R25,000 per month. Can I open a bank account in my name on her behalf, which will not attract taxes? Can you suggest schemes wherein I can invest for her future without putting much strain on my salary?
—Tejas Lele, Mumbai
You can open a bank account in your daughter's name but you will have to register yourself as guardian and will have to pay taxes on the interest. It would be good to start systematic investment plan (SIP) in mutual funds to build a good corpus over long term. Equity funds invest in the market and their returns vary. The risk is high and hence the returns are also in the range of 12-18 per cent. Balanced funds invest in part equity and part debt, which are less risky and give returns from 9-14 per cent. Debt funds invest in government and corporate debt securities and are the least risky and give returns between 7-12 per cent. You can start with Rs 5,000 per month investment in three funds: put Rs 1,000 per month in equity fund, Rs 1,500 per month in balanced fund and Rs 2,500 per month in debt funds. You would surely get 11 per cent CAGR which will make this amount about Rs 40 lakh in 20 years.
Our son has taken an educational loan for his studies in the US last year. We as parents are co-borrowers. Can we claim Income Tax benefit on the interest payment?
—Balkrishna Pillai, Pune
Yes, you can claim the benefit on the interest paid since you are co-borrower. In fact it is advisable for parents to be co-borrowers so that they can take advantage of tax benefits because they fall in higher income tax bracket than their child who has just completed studies. Parents can save more simply because they fall in higher bracket.