CHILD INSURANCE PLAN VS. CHILD EDUCATION PLAN USING MUTUAL FUNDS

Every time you look at your child you wish to provide them with a bright and promising future. Every parent wants to ensure that their child receives only the best in their future. Right from best education to their marriage, parents wish to fulfill every dream of their child. However, if you rely on your current income to fulfill their dreams, you will have to think again.

The cost of living is constantly rising, and your current income cannot help you actualize the dreams. Only well-planned investments can help you achieve your dreams. There are alternative investment products you can choose from. However, you need to understand the features and functions of the products before you decide.

Child Plans from Life Insurance Companies

The first alternative is to invest in a child insurance plan which is basically a dual-purpose plan. The plan will provide a cover in the event of death and will also accumulate the funds at a time desired by the parents. Whatever your purpose of investment, the plan will accumulate the funds for your child’s future.

The Life Insurance

The plan will provide financial security to the child in case of untimely death of the parents. The policy holder is offered a lump sum amount,and the policy continues after that. But all the future payments are waived off,and the insurance company will put in the money on behalf of the policyholder.

However, this is an extraordinary expense if you already have a term insurance cover of 20-25 times of your annual income.

Offer Tax Savings

There are basically two types of insurance plans you can choose from:

One is the traditional plan known as endowment-based plan. This plan typically invests only in highes rated bonds and safest debt securities.Investors may receive a bonus based on the performance of the plan. However, you should not expect extraordinary returns from the plan since it is heavy on debt.

The other plan is Unit Linked Insurance Plan where the investors seek advantage of the market exposure. The investor can choose from a range of funds and has the option to switch between the funds.

Both options offer tax savings but returns vary as per your choice of fund you invest your premium.

Switch Options Within the Plan

This means you can choose to put all your money in an equity fund and at a later stage, you can switch into a debt fund without any tax obligation. You can choose the fund based on the investment tenure and your risk appetite.

However, ULIPs have a lock in the period you need to adhere to. There is a deduction under the Income Tax Act on the amount of premium paid for the insurance plan. The premium amount is written off while calculating the taxable income.

Child Education Plan using Mutual Funds

A mutual fund is an alternative investment option for you. If you are making goal-based investments, you need to consider mutual funds. Mutual funds offer a highly customization solution for your money.

In fact, mutual funds are best for those investors who have exhausted their 80C limits, and still, want to invest more. For long term goals such as a child’s higher education, you can select either pure equity funds or balanced funds.

Lower Expenses

If you already have a sufficient term insurance cover, there may not be a need to secure your child’s goal separately. However, you must aim to accumulate as many funds as possible. Mutual funds are perfect for such a goal, as they enjoy lower expense ratios than ULIPs.

Mutual funds have generated high returns over the years and are a widely preferred investment option.

Invest Monthly or Weekly

You can set up a Systematic Investment plan for the mutual fund and make sustainable, timely investment for the future of your child. This will ensure that your budget is not disrupted while the investment continues to grow.

The cost of education is rising, and the cost of living is increasing due to double digit inflation. As a parent, you need to begin saving at an early stage to keep your child financially secure. By choosing the right investment options, you can ensure that your child achieves their personal goals and does not have to worry about the finances. Investing early and consistently will reap substantial results in the future,and your child will be able to live their dreams even in your absence.