Your child’s future is most likely to be among your most important financial goals and hence being aware of child-focused investment plans are perhaps a necessity these days. This is not only because of the increasing cost of education in the country but also to secure your child’s future in case of an unfortunate incident.
With such requirements, you should be aware of the new-age child ULIP plans. Among the benefits is –
1) The family gets death benefit for daily expenses on the death of the parent
2) The family will receive monthly income to fund the child’s academic expenses and
3) As future premiums are paid by the insurer, the final maturity amount is also paid by them.
ULIPs have faced criticism for having a high-cost structure. However, new-age ULIPs are of low-cost as against mutual funds. They don’t have policy administration charges. The fund management cost that you pay is capped at 1.35%. Besides, online ULIPs also let you have unlimited ‘switch’ options.
Child focussed MFs
They are similar to the other MFs with the only difference being that it comes with a lock-in period so that the investor stays committed for the long-term. So, if you need funds for your child right after five or six years, child-focussed mutual funds may be the right option since ULIPs come with a long maturity period.
Otherwise, ULIPs prove to be a better option over MFs as ULIPs not only come with tax deduction on premium paid but also with maturity benefit being tax-free.
One school of thought also says that you don’t necessarily have to go for child-focussed MF.
You can start your goal-based investment by spotting mutual funds. And for an additional layer of protection, you can buy a term plan with substantial coverage.
Though ULIP is sold as an investment product and not as an insurance product, it should be understood that the ULIP plans have various continuing charges, which reduces your overall return on the investments.
Moreover, the ULIP plans have liquidity issues as you cannot get money from your ULIP investments prior to the completion of five years even if you surrender them before five years.
Other suitable options
For your girl child, you can always consider Sukanya Samriddhi Yojana. You can also open a PPF account. One of the parents can act as a guardian till the child attains the age of 18, post which the account will turn major from a minor.
It must be noted that if you have a pre-existing PPF account in your name, the maximum amount invested in your account including the child’s account cannot go beyond Rs 1.5 lakh per year.
Therefore it is prudent to either go for a combination of the low-cost mutual fund along with a term plan or with new-age ULIPs. If you are not willing to have equity exposure, Sukanya Samriddhi or PPF may be considered for your child’s future. Know about ULIP vs SIP, If you wish buy a life cover along with wealth creation, ULIPs are your best purchase. On other hand if you want to be safe from inflation effect, SIPs are a good choice.