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.

What is the distinct feature of Reliance Diversified Power Sector Fund, Reliance Banking Fund and SBI magnum sector fund? Answer – they are all sector funds. But what are sector funds? How do they differ from diversified mutual funds?

A sector fund is the fund that invests exclusively in a particular sector like banking or IT. So a typical banking fund may include SBI, HDFC bank and ICICI bank in its portfolio. On the other hand, a diversified mutual fund includes stocks from banks, IT, retail and other sectors in its portfolio. So its portfolio is much more broad based.

While sector funds were hot for the past few years, it does have its drawbacks. The major drawback is that when the going is good, these funds generate very high returns. But when the tide turns, these funds can languish for an indeterminate period of time. This was evident with the IT funds who suffered heavy losses when the IT sector went down after dotcom bust.

Also when you try to enter this sector, it is quite likely that it has appreciated to a great extent and its downfall is about to begin. So it is quite possible that when you have entered the sector you buy the units at a higher price, only to find their price going down afterwards.

Hence it is advisable to give these funds a miss. However if you do want to invest in these funds, ensure you allocate just 5% of your portfolio to these funds. And that too after investing in diversified mutual funds.