Child Plans: Is that REALLY worth it for your kids?

“The most valuable wealth of a man is his knowledge, which cannot be destroyed; all other riches that he has gained are not considered to be wealth at all.”

The great Tamil poet and saint Thiruvalluvar uttered these lines on education. But what if I startle you with a brutal truth? Education is the indestructible wealth one can acquire. Yes! but it is not possible to acquire indestructible wealth without destructible wealth in this day and age. This is where the importance of the best investment plan for your kids comes in.

I am reminded of a Tamil saying “Experience what it is to build a house and get a child married” probably that is the reason why wise parents want to invest in the best child plan to meet the long-term financial obligations like education and marriage costs of their children.

In addition, the rising inflation rate also calls for starting savings early in a child’s life. However, it would be advisable to know, evaluate and compare various means of savings. This could also enlighten you about how “child plans” need not be the only investment method.

Disadvantages of a Readymade “Child Plan”

The ambitions of your kids are not always readymade, but why do you want your investment plan for your child to be readymade?

As parents what more is fulfilling than the fact that your child can pursue whatever he wants without much worry? Higher goals require higher risk. Even though it is not advisable to take too much risk into something as sensitive as education.

Education requires you to have a constant and secure flow of money. But still, It is possible to come out of your conventional mindset of investing and look for something that gives you more.

 Insurance in a child plan

“Child plans” with insurance resemble unit-linked insurance plans. Starting early in a child’s life and ending only when the child attains maturity. The amount of money invested in these plans is insignificant considering an inbuilt insurance component.

Premium allocation charges are the commission paid to distributors. This could lead to a low return in the initial stages and additional losses on leaving before the completion of the tenure.

Manipulation through sentiment

Most of the “Child plans” in the industry come with a catchy name to capitalize on the “Child sentiment” in us. It is always advisable to use your critical thinking to avoid emotional decision-making.

“Don’t invest in a clichéd child saving scheme for the sake of investing, this will in turn make the future of your child’s life clichéd”

We need a different medicine for a kid and adults. But do we necessarily need different types of investment options for securing a kid’s future? Think!

Alternatives for Child Plan

A conventional investment plan is sustainable because of the hope that you will be able to provide for your children forever. But life has other plans,

What if you are not there for him/her in the future? There is a deep sense of relief when you know your children are safe after your time. Do you agree?

It is to be noted that other investment products like the Public Provident Fund, National Savings Certificate, National Savings Scheme, RBI bonds, post office deposits, and mutual funds serve the purpose of savings and increasing capital value.

These investments apply equally well to a child’s future and provide the best support for expenses like education and marriage.

1.Sukanya Samriddhi Yojana (SSY) 

A government scheme that ensures the betterment of a girl child. 50% of the money can be withdrawn when your girl child turns 18 to meet the educational expenses. There are many schemes that we are unaware of. It will be great if you can spend a little bit of your time for the betterment of your children’s future.

We have discussed this scheme in detail. Please check below

2.Mutual fund as a child plan

Do you remember your time as a kid when your parents comfortably gave education to three or four children? In this day and age, it is an uphill climb to satisfy the educational needs of even a single child.

“The cost of education keeps growing day by day and don’t you want to invest in something that keeps growing on par with the cost of education?”

Mutual funds are available in a wide range to satisfy all appetites for risks and are one of the best child investment plan alternatives you have. In addition, there are mutual funds that are designed for meeting the long-term financial obligations of children.

You could also invest in funds with the right balance between debt and equity that promise better capital growth than child plans. It is also possible to go in for a systematic investment plan that offers the opportunity of taking advantage of price differences and gain in the long run.

Systematic investment plans or SIP in mutual funds indeed help save entry costs and build a habit of regular savings for capital growth and meet children’s financial obligations.

 It is also possible to avail of tax benefits as such funds are taxed only on maturity and a major child’s income would be taxed separately. I am sure you would agree that this would help you to save unnecessary expenses and cut in investing child plans.

PPF and Child Plan

PPF or Public Provident Fund is also good as a mutual fund. Opening a PPF account for 20 years in a child’s name will be one of the best ideas for meeting the education and marriage expenses in the future.

Section 80C of the Income Tax Act gives an exemption if the money deposited is from the parent’s account to the minor’s PPF account.

Don’t fall into the trap of only a one-time investment plan for your child. It is also advisable that a slow and steady investment with good returns is a safe bet.

An annual investment of just Rs.100000 in PPF would leave you with almost Rs.46lac as a result of the compounding effect. It is difficult for a “child plan” with insurance components and upfront charges to offer you such a great return without taking much risk

An Ideal Mix

Even though you eat a lot of outside food for the sake of your taste buds, there is a sense of great relief when you eat at home. It is not about sacrificing one for another but having a balance. It would be great if we can bring that balance in every aspect of our life.

The same philosophy will also apply to investment, right? investment plays a significant role in changing the future of your life.

You can plan for your kid’s future in a practical yet powerful way.

How to plan for your children’s education?

Instead of going for a “Readymade Child Plan”, you can customize their Investment Plan for your child with a combination of Term Insurance, PPF, and equity diversified.

If tax saving is your motive one can consider ELSS funds instead of a regular equity fund.

It gives you similar tax benefits to a child plan. You get 80 C benefits for your investments. This can even beat the best children’s education insurance plans in India.

At the same time, the charges are very minimum and negligible when compared to “readymade child plans”.

You can increase or decrease your contribution every year depending on your financial situation.

How much to save for your Child’s education?

This is a question that is extremely hard to answer. But always remember that investing in education is not like other investments where the return on investment Is the singular goal, investment in education is a ‘selfless investment’.

To calculate how much to save for your child’s education plan, you need to decide how much you need for your kid’s higher education in today’s cost and a few other variables.

 It is always good to keep an amount separate for education as there is a risk that urgent medical needs will force you to spend money on them.

With those details, you can easily calculate how much you need to save and how much can you get in the future for your child’s education.

To make this process much easier, we have given you an automated calculator below:

Final Verdict

So whenever you think of a best child investment plan think of a customized investment plan for your kid’s future with a mix of 2 or 3 investment options instead of a readymade product with a tag “Child Plan”.

I am sure you would agree that readymade child plans to prove to be not ideal investments for your child. The wisest line of thought would be a mix of diversified investments that give good returns with low charges.

Do you agree that a readymade child plan is not a better investment idea for your child? Kindly share your views on our ‘child plans review’ in the comment section.

To create not only a child plan and also to create plans for your retirement, for buying your dream home, and all other financial goals, you should work on a complete and comprehensive financial plan. To assist you in the process of creating a financial plan.