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. In this article, we will be discussing a child plan and a child fund for your better understanding.Read more
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*
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
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.
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.
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.
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.|
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:
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.
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.
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.
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.
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