Children's Investment Plans - Are they really useful?

" A Child is the father of a Man", so goes a proverb. Truly, it is only after you become a father that you understand the real meaning of responsibility. Many of us begin to invest for our child's future as soon as the the child is born. Let me try to analyse a few points on this ever important facet of our lives.

Most of the parents begin planning for their child's future right after the birth of the infant. And the agents make best use of the emotions of these new parents. The insurance companies monetize the emotions. Is there really any need for a separate child investment plan? The agents of these financial institutes exploit the emotional quotient between a parent and the child to the fullest. So, would it not be wise enough to dig a little deeper into how you can plan for your child's future?

What Is A Child Plan

Well, as far as as the current scenario is concerned, there is not much difference between the regular insurance/investment plans and a child plan. What I mean is most of these policies/plans appear similar with the change of a name. As long as my commonsense goes, there is nothing like a child plan or regular plan. It all depends on the kind of plan you would like to opt for. The finance firms will try to tempt you to opt for special child plan. I would differentiate the plans they would offer you as under -
1. Child Plan as insurance
2. Child plan as investment
3. Child plan as financial planning.
Do they really make sense? Let me explain these in a little more detail. This will help you understand the importance (or unimportance) of these gimmicks.

Child Plan As Insurance

There are a few insurance plans designed for the safety and security of your child in case of an unfortunate unforeseen incident. But are they worth it? I, for one, would suggest you not to go for such plans. Instead it would be better to opt for regular term insurance plans. Specifically designed child insurance plans have high costs- they consist of administrative costs, allocation costs and what not. Why do you think you need to bear those costs? Everyone, of course, takes insurance cover. Just add the costs of your child's education, marriage etc. to your insurance requirement. And that way, you will get better savings and better returns.

Child Plan As Investment

You will get tempted to go for some investment plans. Considering the rising inflation levels, you will decide on a plan. But, does the inflation not affect the plan itself? So, would it not be sufficient to go for your normally planned investment options? Where is the need for a specific child investment plan when your existing plans are enough for the purpose?

Child Plan As Financial Planning

You may be asked to include a particular plan as part of your finance planning as a whole. If you have already covered yourself enough with proper amount of insurance and a planned investment, why would you need an additional child plan?

So now having quashed all the aforesaid tactics of the financial agents and their firms, what would I suggest you to opt for? Are there any better options so that you can have a well planned secure life for your child? Well, as I said above- if you already have a better planned insurance and investments, there is no need to go for specific child plans. Even then, I would suggest a few investment options that are free from risk.

Some Better Investment Options

  • Public Provident Fund
    This is the first and foremost option for any investor. It provides you double tax advantage. Also it has a 15 year term which is a good term to build a healthy corpus. The tax benefits involved here include the tax exemption for Rs. 1.5 Lakes per year and zero tax on the interest earned over 15 years. The scheme has provisions for partial withdrawal after 7 years , but I would suggest not to withdraw.
    This is the best option for locking up your money for a longer term and gaining substantially better returns. Rs. 1 Lakh invested per year in PPF for 15 years will yield Rs. 30 Lakhs.

  • Money back insurance plans
    There are insurance plans that offer guaranteed money back. You can get dual tax advantage in these plans. Both your invested amount and interest/bonus accrued is exempted from payment of taxes. These money back plans offer insurance cover of upto 10 times the premium paid. A few of such plans are available from LIC and IDBI Federal Life.

  • Go For Additional Term Insurance
    Opt for additional term insurance cover. By additional insurance I do not mean an insurance plan in your child's name. If you think your child's education will cost you Rs.15 lakes after say 15 years, get a plan for Rs. 20 lakhs for a period of 20 years. Keep investing your savings in a FD. This will help your child in case of unfortunate death of parents- otherwise it would be helpful in your child's education.

  • Invest in Recurring Deposits
    This is the most risk free investment option. At the current rate of interest , thus can be treated as the best option. Investing Rs. 1000 per month will fetch you a corpus of Rs. 2 Lakhs in 10 years. Also you can invest one year's accumulation into the fixed deposits thereby increasing your corpus a bit more.

  • National Savings Certificates
    The NSC can be one of the excellent child education plan. If you invest Rs. One Lakh per year for ten years, you will not need to spend a penny in the 11th year.

Final Thoughts

You have a lot of options to choose from. Please remember you need to have a look at the safety and the tax benefits. Use your own discretion to choose the plans. There is nothing in the name. Weigh your financial goals against the benefits you are getting. The finance firms or their agents will only describe the positives of their plans. Take your own time to reach conclusions. As far as my suggestion goes, I will advice you not to go for a specific child plan. Consider the available investment options. You can choose the plans individually or in combination, thus creating your personalised plan for securing the future of your child.

Read Children's Investment Plans - Are they really useful?

Article by Timmappa Kamat
Timmappa Kamat is a technology enthusiast. He has an active interest in newer technological developments. He is fond of new gizmos & gadgets. He loves to share his knowledge through tech-savvy websites as a freelancer. A Mechanical Engineer by profession, he is equally interested in blogging, with his own blog. He wants to carve a name for himself in blogging arena one day! If you need any clarifications about his articles,please respond here below or get in touch with him through his profile.

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