What factors do you need to consider while opting for a child insurance plan?

You need to consider your child's age, investment objective, type of insurance plan, pay-out offered by the plan, and your investment amount.Â

What factors do I need to look upon before choosing a child fund?

If you need to invest in a child fund, you should be clear about your investment objective and risk profile. You may choose to invest in equity schemes, debt schemes, or hybrid schemes. You can also look into index funds and solution-oriented schemes etc., as per your financial goals.

What are some other investment options apart from child plans and child funds?

You can choose to invest for your child's future in various other investment options like fixed deposits, Public Provident Fund or PPFs, and applicable Central or State Government schemes as well.

How much do I need to invest in an insurance plan for my child's education?

It is a bit tricky to estimate the cost of your child's education or marriage expenses. So, giving a ballpark number may not be feasible. Instead, you can look into various factors like your child's age and what type of education you want to provide for your child.Â

Is there any documentation required if I need to invest in child funds?

You need to submit official documents as proof that you are a parent or a child's legal guardian. You may also need to submit KYC documents like your identity and address proof and PAN card details. You need to submit additional documents related to your child at the time of redemption, like his/her identity proof.

Is there any benefit if I choose a one-time payment child plan?

You can choose to invest in child insurance plans that offer one-time investment options. Here you can enjoy the plan's benefits for policy tenure once you have made the one-time payment.

Child Plan vs. Child Fund

As a parent, savings and investment for your child will be among the top financial goals in your life. You will always like to plan the critical milestones for your child’s life, like higher education and marriage. You need to plan for your child’s future with proper care and discernment. You must also have an adequate corpus in place.

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In this article, we will be discussing a child plan and a child fund for your better understanding.

What Are Child Insurance Plans?

A child insurance plan is a common investment option offered by life insurance companies. It serves as insurance as well as an investment tool for your child's financial safety.

A child insurance plan fulfills two major objectives for you:

Investment for the future goals of your child
Financial protection of your child in case of your untimely death

Benefits of Child Plans

Following are the benefits of child insurance plans:

These plans provide the financial backup for reaching the academic goals of your child's life.
These plans also help build the corpus for meeting your child's other future expenses.
Your child can get the benefits of the child insurance policy even in your absence.
These plans provide the option of partial withdrawal of funds in case of any emergency.

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Invest ₹10K/Month YOU GET ₹1 Crores^* For Your Child View Plans

Invest ₹8K/Month YOU GET ₹80 Lakhs^* For Your Child View Plans

Invest ₹5K/Month YOU GET ₹50 Lakhs^* For Your Child View Plans

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What Are Child Mutual Funds?

Child mutual fund schemes aim at funding various important life events of children. These funds are generally hybrid or balanced mutual funds that provide investment options for your children like higher education and marriage. These funds invest in both debt and equity options and ensure long-term capital growth needed over some time.

The primary purpose of a child mutual fund is to create an adequate financial source. It also builds a secured portfolio for your kid as you get returns for your investment amount. You can do a little research and choose between debt and equity-based investment as per your investment horizon and risk appetite.

You get to invest a suitable amount for a minimum lock-in period, say, 5 years. After that, it can continue till the time the child becomes an adult. The lock-in period ensures that the investor does not withdraw any money till the plan reaches maturity.

Benefits of Child Funds

Following are the benefits of investing in child mutual funds:

Your investment in child funds provides a base for long-term financial planning due to the lock-in period.
A diversified fund portfolio helps you categorize your investment for different child goals like education, marriage, or other purposes.
Investors with a higher risk appetite can get greater returns by following a more rigorous investment approach.
Under exceptional cases, parents with children suffering from disabilities can get additional tax exemptions in case of investment in child funds.

Comparison Between Child Plans and Child Funds

As parents, you may get confused about a better investment option – a child insurance plan or a child mutual fund. The table below shows a quick comparison between the two investment options to help you decide better:

	Child Plan	Child Fund
Purpose	Investment plus insurance option to secure your kid's future.	Mutual funds are solution-oriented plans for your kid's education or marriage.
Insurance cover	Child plans come along with insurance cover.	There is no additional insurance coverage with these funds.
Nature of support	Child insurance plans are known to provide a steady investment choice as you pay your premiums towards a maturity benefit.	Child funds do not assure a steady build-up of the corpus as they do not always offer guaranteed returns. In addition, the nature of your corpus will be impacted by market fluctuations and depreciation.
Tax benefits	If you have invested in a child insurance plan, all the premiums paid are exempted from tax under Section 80C of the Indian Income Tax Act. Similarly, the plan's maturity amount is tax-free under Section 10(10D).	If you invest in a child fund, your investment up to Rs 1.5 lakhs annually is tax-exempt as per Section 80C of the Indian Income Tax Act. Interest earned on these investments is also tax-free. However, there are Long Term Capital Gain (LTCG) Taxes @10% above Rs 1 lakh.
Partial withdrawals	Some child insurance plans offer partial withdrawals after a specified lock-in period or even in terms of emergency, as per specified terms and conditions.	Child mutual funds do not provide any option of partial withdrawals due to the lock-in period.
Risk portfolio	The chief aim of these plans is your kid's financial security. Any investment is based on the amount of risk you are willing to take.	Child funds offer a more risk-based strategy. You get returns in proportion to the financial risk you are willing to take.
Investment approach	Child plans generally offer a conservative investment approach with insurance. As a result, any investment returns are considered secondary.	Child funds offer a more direct approach for investment based on a diversified portfolio, research teams, and fund managers.
Additional benefits	Child insurance plans may come along with additional rider benefits. For example, a Premium Waiver Rider allows for future waivers of the policy's premiums in case of the parent's unexpected demise.	Children's mutual funds do not provide any additional benefits than those specified in the prospectus.

Which Is a Better Investment Option?

We now have considerable information about both child insurance plans and child mutual funds. It leads to an obvious question as to which is a better investment option. Let us consider the following:

Investment Goal & Age

Before investing in any plan, you must figure out how much money you are ready to invest. It is closely related to your child's age at the time of investment.
Risk Appetite

Different investors have different risk appetites. For example, some investors follow a safe and steady approach instead of frequently agonizing over how their investments are faring. They are the investors with low-risk appetites.

However, if you think you can take risks, you can invest in child funds for creating wealth over the long term. As a parent, you need to choose an option that suits your risk tolerance.
Need for Returns

Before choosing a particular investment option, you should be clear about the outcomes of your investment. For example, if you are looking for a lump sum maturity benefit for your child by the time they reach a particular age, a child insurance plan can be helpful.

If you aim for greater returns, you should be willing to take more significant risks in the form of investment in child funds. Here you need to be mindful of the time at hand. For long-term goals, insurance plans can be a good option. For shorter periods or specific goals, child funds could give you the desired returns.

In Conclusion

With the widespread availability of investment options in the market, you can choose to invest in child insurance plans or funds or even both. A quick analysis of your finances at the start and your investment objectives can be significantly beneficial for you. It will put your money in the best hands without straining your finances.

FAQ's

What factors do you need to consider while opting for a child insurance plan?

You need to consider your child's age, investment objective, type of insurance plan, pay-out offered by the plan, and your investment amount.
What factors do I need to look upon before choosing a child fund?

If you need to invest in a child fund, you should be clear about your investment objective and risk profile. You may choose to invest in equity schemes, debt schemes, or hybrid schemes. You can also look into index funds and solution-oriented schemes etc., as per your financial goals.
What are some other investment options apart from child plans and child funds?

You can choose to invest for your child's future in various other investment options like fixed deposits, Public Provident Fund or PPFs, and applicable Central or State Government schemes as well.
How much do I need to invest in an insurance plan for my child's education?

It is a bit tricky to estimate the cost of your child's education or marriage expenses. So, giving a ballpark number may not be feasible. Instead, you can look into various factors like your child's age and what type of education you want to provide for your child.
Is there any documentation required if I need to invest in child funds?

You need to submit official documents as proof that you are a parent or a child's legal guardian. You may also need to submit KYC documents like your identity and address proof and PAN card details. You need to submit additional documents related to your child at the time of redemption, like his/her identity proof.
Is there any benefit if I choose a one-time payment child plan?

You can choose to invest in child insurance plans that offer one-time investment options. Here you can enjoy the plan's benefits for policy tenure once you have made the one-time payment.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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