How grandparents can help invest for your child—and save tax too

In many families, grandparents are the quiet anchors. They’ve seen how money grows, how it slips and how it can be passed on with meaning. While their love shows up in many forms, one of the most lasting is financial care, done in their own steady way. This article touches on how that support can go beyond the emotional, helping build something real for your child’s future, while also bringing some smart tax benefits into the picture.

Investing in Tax-Saving Instruments Under Section 80C

Grandparents can invest in the name of their grandchild through popular tax-saving instruments covered under Section 80C, such as Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY for a girl child), ELSS mutual funds or 5-Year Tax-Saving Fixed Deposits. These allow them to contribute meaningfully while also reducing their own taxable income, if they’re still filing returns. Even if the tax benefit isn’t claimed, these investments grow steadily, with many offering tax-free maturity and interest, making them ideal for long-term wealth creation in the child’s name.

Opening a Minor Account as Guardian

Another option is for grandparents to open a minor account where they are listed as the guardians. This could be used for systematic investments in mutual funds or for creating fixed recurring savings. While the income generated may be clubbed with the parents’ income under tax rules, in some cases—especially when grandparents are not availing any deduction—the returns may not significantly impact the family’s tax liability. It’s a thoughtful way to build a separate corpus for the child while keeping the investment structured.

Gifting Money to Grandchildren Tax-Free

They can also simply gift money to their grandchildren without worrying about tax implications. Under Indian tax laws, gifts received from grandparents are fully exempt, regardless of the amount. Once the gift is made, the money can be invested in the child’s name. While the returns may be taxable in the hands of the parent if the child is a minor, many families use this route for planned gifting during birthdays, festivals or milestones and the income can often be kept below taxable thresholds with proper planning.

Using the Sukanya Samriddhi Yojana for a Girl Child

For families with a girl child, Sukanya Samriddhi Yojana remains one of the most attractive options. Grandparents can contribute to the account each year, up to a limit of Rs. 1.5 Lakh, until the child turns 15. The account matures at 21 years of age, making it perfect for higher education or wedding-related expenses. Since this scheme offers exempt status at every stage—on investment, interest and maturity—it’s one of the most tax-friendly ways to secure a grandchild’s future.

Starting a SIP for Long-Term Growth

Starting a SIP (Systematic Investment Plan) is another smart move. Grandparents can initiate a SIP in the child’s name in mutual funds, whether in equity-linked savings schemes for tax efficiency or in balanced funds for more stability. Over time, this small monthly contribution can grow into a sizeable fund. SIPs are commonly used as a form of investment for children, as they help build wealth gradually without straining monthly budgets and can be adapted based on risk tolerance and time horizon.

Making Use of Senior Citizen Tax Slabs

Senior citizens have access to a higher income tax exemption limit—Rs. 3 Lakh for those above 60 and Rs. 5 Lakh for those above 80. Grandparents can invest within these thresholds in low-risk options like Senior Citizen Savings Schemes or conservative mutual funds and use this income for their grandchild’s needs. It lets them stay within the non-taxable bracket while still contributing meaningfully to the next generation’s financial goals.

Creating Fixed Deposits in the Child’s Name

Banks also allow grandparents to start fixed deposits in the name of their grandchild. These accounts are usually managed under the guardian’s name until the child turns 18 and they come with flexible tenure options. The returns from these deposits, if structured right, can remain within the basic exemption limit of the child. Some families use this method as part of a child education plan, especially when saving for short- to medium-term academic expenses.

Planning Through Wills or Minor Trusts

For larger or more long-term planning, grandparents may also consider creating a will or setting up a trust for the grandchild. While this doesn’t offer immediate tax savings, it provides clarity in inheritance, ensures smooth transfer of wealth and can be used to earmark funds for specific uses like education or healthcare. A trust, especially, can include tax-saving clauses and appoint trustees to manage the assets until the child comes of age, making it a responsible legacy-building tool.

Conclusion

Grandparents don’t need to rewrite their financial plans to make a difference. Even small, steady contributions, when structured right, can unlock long-term value for the entire family. The key lies in using the right mix of products, understanding who should invest and how the tax rules apply. What starts as a simple gesture of love can quietly support future goals, reduce the family’s tax burden and build intergenerational discipline around money. The earlier you map this out, the more efficiently your child’s future can be secured.