Child Insurance Plan Vs. Mutual Fund- Which is a Better Investment?

Considering the rising inflation effect, it becomes significantly important to build enough corpus for your child's future. However, with the availability of so many investment options, it becomes quite tricky to opt for the best plan. Let us put a child insurance plan vs. mutual fund to determine which is better for the child's future goals.

Best Child Saving Plans
  • Insurer pays your premiums in your absence

  • Invest ₹10k/month and your child gets ₹1 Cr tax free*

  • Save upto ₹46,800 in tax under Section 80(C)

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Nothing Is More Important Than Securing Your Child's Future

Invest ₹10k/month your child will get ₹1 Cr Tax Free*

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What is a Child Insurance Plan?

A child insurance plan is a blend of insurance plus investment. It offers ultimate financial security for the policyholder’s child.

Considering the uncertainties of life, this plan offers death benefits to the child by covering the insured parent’s life. If the insured outlives the policy tenure, the maturity benefit is provided in a lump sum payment.

This way policyholder can use the money for your children’s higher education or their other important life events. Not only this, a child plan comes with a flexible pay-out option to financially aid the child of the policyholder at important milestones of his/her life.

What is Mutual Fund?

Let's understand the definition by its name. When a large number of investors pool in money with the same investment objective they create a mutual fund. An Asset Management Company manages the accumulated money and invests it in equities, stocks, bonds, and other market securities.

As a mutual fund investor, you hold a specific unit of one type of investment with other investors who hold their units in the same. Each unit is traded based on Net Asset Value (NAV). The income generated from mutual funds is then distributed on an individual proportionate basis. 

One thing to note here, the NAV keeps changing due to the volatile market conditions which further affect the overall gains/income. This is why it is also considered a high-risk investment scheme.

Child Plan Vs. Mutual Fund: A Comparison

When it comes to saving a portion to secure your child's future, it is very important to invest in a way that the corpus built over years would benefit the child. It can be confusing to decide whether to opt for a child savings plan or mutual fund.

With the help of below mention comparison, it can get easier to make an informed decision:

Parameter

Child Plan

Mutual Fund

Steady financial support at various life stages

Child insurance plans help you build a steady investment over its tenure. You pay premiums each year and the insurance company ensures a maturity benefit to financially aid your child at different stages of his/her life like for higher studies, moving abroad, and marriage.

When it comes to mutual funds you cannot be certain about the steadiness of your corpus. As mutual funds do not offer fixed guaranteed returns. Due to market fluctuations, depreciation in the value of your mutual fund can cause losses.

The Role of Risk Appetite

A child plan is a kind of insurance plus investment plan which offers a life cover and investment. Here as an insurer, you invest a certain portion of your premium in the market funds like equity, debt funds, and other securities. So, a child plan comes with security and the insurer invests your money based on your risk appetite.

Mutual funds are entirely based on the more you will take risks, the more you have chances of higher returns. However, investment in mutual funds is subject to market risks.

Premium Waiver Rider Benefit

With the help of a premium waiver rider, the policy can remain in force even n case of any eventuality during the policy tenure. The insurance company helps the policyholder's child at crucial stages of life and at the same time waives off the future premiums. The child receives a maturity benefit at the end of the policy tenure. 

There are no further added benefits under the mutual fund. 

Partial withdrawals

A child insurance plan allows the insured to make partial withdrawals during the policy tenure if there is an urgent need for funds for the child's education or his/her other needs.

There is no option of partial withdrawals in mutual fund investment as it comes with a specified lock-in period.

Tax Benefits

The premium paid against the child plan is exempt from tax deductions under section 80C of the Income Tax Act, 1961. The maturity amount is also eligible for tax-exemption  U/S 10(10D) of the IT Act.

Investments for up to Rs.1.5 lakh per annum in mutual funds are exempted from tax deduction under section 80C of the Income Tax Act. However, a 10% tax on Long-Term Capital Gains above ₹1 lakh is applicable- this further reduces the overall returns on investment.

Wrapping it Up

Child insurance plans and mutual funds both are good investment options.  However, you wouldn't want to take high risks when it comes to building a tidy corpus for your child's future. The mutual fund investment is a great investment tool for someone who is disciplined with market fluctuations and can take high risks. While on the other hand, a child plan offers a steady corpus with a life cover that safeguards one’s child's future in case of his/her untimely demise.

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