Best instruments to save for your child’s future

Every parent wants to give the best for his child. So they start saving for their child’s education. However there are many instruments available in the market that claim to offer best returns for your child’s future. These products are designed exclusively for children. Here are the products meant to give your child the bright future.

  • Children’s plans from insurance companies: Many insurance companies offer children’s plans. These are the combination of insurance and investment. While they resemble normal ULIPs, the charges are higher here as these products are specialized products offering guaranteed returns. The insurance cover is more, and even if you are not around your child will remain protected. You can also withdraw money from the policy periodically to meet your child’s educational needs..
  • Children’s plans from mutual funds: Similar to insurance companies, mutual funds also offer children’s plans. These are more of debt funds with higher charges than traditional mutual funds.

 

Now when you choose a typical child’s plan, you will get lower returns than a conventional investment instruments. So what should you do?

Start investing in couple of good equity mutual funds as soon as your child is born. Take a term policy that will offer you high insurance at low premiums. This will ensure you can build a healthy corpus for your child by the time he turns 18.

Why insurance is not a good investment option?

“Invest Rs. 2000 a month and get Rs 5 lakhs after 5 years.” “Give a better future to your child by investing in our insurance plans.” These and other similar advertisements bombard us everyday. The basic aim of these ads is to market insurance plans as investment vehicles. But is it true? Do insurance plans really make good investment options?

To answer this question, first let us understand the main objective of insurance. The primary aim of insurance is to protect you and your near and dear ones against any unforeseen calamities. Let’s say, you have met with an accident, due to which you are unable to work. It will affect your income and you and your family will suffer financial hardships. But if you have an insurance cover, you can claim compensation, that will help you ride through the tough time.

Now when you look at insurance as an investment option, a portion of the premium you pay towards your life cover is invested. Depending on your risk profile, you can choose to invest in equities or debt. As a result, the life cover you get is significantly reduced. Also to manage your investments, the insurance company has to hire expert fund managers, which cost money. The fees for their charges are deducted from the value of your investment. Consequently, the value of your investment decreases.

Moreover the charges and the portfolios of these plans differ vastly amongst different insurance companies. This makes it difficult to compare the returns of these plans. Hence insurance + investment combo doesn’t make smart investment decision. Instead, it is better to take both of them separately. Remember the key to successful investment is disciplined and consistent approach.

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