Q. I’m Gaurav, a 35-year-old sales professional residing in Kolkata. I’m a father to two kids, a 5-year-old son, and a 2-year-old daughter. Recently, a colleague introduced me to the concept of child investment plans. I’m looking for expert advice on whether it’s beneficial to invest in these plans, especially considering that I have already invested a significant amount in bank deposits, such as fixed deposits (FDs) and post office recurring deposits (RDs).
With inflation hitting an all-time high, it has become pertinent for all parents to start planning for their children’s future well from an early age. Education inflation, particularly, is what young parents should be mindful of and start investing keeping in view the coming 15-20 crucial years.
It is commendable that you are already investing in traditional instruments like FDs and RDs, but given the corpus, you would need in the future for both your children, you must explore child investment plans. If you strategically plan and invest in a child plan that matures when your child seeks higher education or gets married can significantly alleviate your financial strains.
As a parent, your concern goes beyond wealth accumulation and you also desire future financial security for your children. An Insurance-cum-investment plan can help provide you with both – returns on your investment as well as a safety shield for children. Since your inclination seems to be more towards traditional plans, you can go for guaranteed plans for they stand out as a popular choice for yielding high returns at no risk.
These plans allow parents to build wealth securely and profitably, offering competitive returns as high as 7.5% without the risk of market volatility. As you mentioned that you are a salaried professional, so beyond the potential for wealth accumulation, this plan also offers tax benefits. This dual advantage of high returns and no risk makes guaranteed plans an attractive option for risk-averse investors.
To diversify your portfolio, you can also add Unit Linked Insurance Plan to your investment strategy. ULIPs serve as a dual insurance and investment tool, ideal for securing your children’s financial future. Unlike traditional insurance policies, they involve regular premium payments, with a portion allocated to market-linked investments.
Historically, these plans have shown a record of yielding returns ranging from 14% to 15% in favourable Indian market conditions. However, they do get impacted by market conditions so factor in the risk element before you invest.
If you are seeking a well-rounded investment strategy, considering child capital guarantee solutions is favourable too. This solution strikes a balance between securing your initial capital entirely while also allowing potential gains from market growth; ensuring both capital protection and the possibility of good returns on your investments.
What makes these plans exceptional is the inclusion of the waiver of premium features. In the event of the policyholder’s demise, the insurance company takes on the responsibility of future premiums. This allows the policy to remain active with premiums being waived off, ensuring the child remains eligible to receive the fund value upon maturity.
As a parent, having this financial safety net in place provides peace of mind, no matter what unexpected turns life brings your way. All these plans offer tax benefits up to ₹1.5 lakh under Section 80C for premiums paid owing to the life insurance element and also tax-free maturity under Section 10 (10D).
These plans serve as ideal child investment plans, ensuring the financial security of your children’s education, future college expenses, wedding costs, and even their entrepreneurial aspirations. Achieving these milestones necessitate you to substantially plan and divide your funds strategically.
Vivek Jain, Head – Investments, Policybazaar
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Updated: 28 Nov 2023, 11:33 AM IST