What are Child Plans?
Which Child Plan to Pick?
How is Sukanya Samriddhi Scheme?
What are Child Plans?
Child plans are predominantly covered by Insurance companies, where currently plans have a fixed premium, to be paid over a period and invested money/ returns paid back when the child enters a certain age (which is generally 16, 18 and/or 21). The main drawback of these type of plans:
- The liability to pay fixed premium, else the whole policy gets lapsed
- The structure of pay-out which may not entirely fit the case requirement
- Returns, they are comparatively quite low, especially if it is an endowment plan, where you get a low return (around 5% p.a.) which hardly comps off for inflation. Whereas, for ULIP, the policy charges may further erode down the return and give you a return lower than the benchmark market performance.
There are Mutual funds too, which aims towards Children gift funds, but the investment strategy is more like balanced funds and the exit load penalty is on a higher side for most of these funds.
Which Child Plan to Pick?
As explained above, its recommended not to pick any child plans, as most of it is an emotional marketing ploy, by the Insurance companies to entice customers.
Ideally, one should opt for Equity mutual funds, being further diversified into Large-cap, Mid-cap and diversified funds, where the tenure is minimum 7years+. Further:
- It is wise to change the allocation towards Balanced/Debt, when the Goal to require fund is nearer
- And to go for a term cover, to mitigate the risk of financial loss, if the parent/s has a unfortunate death which may lead to income loss.
How is Sukanya Samriddhi Scheme?
Sukanya Samriddhi scheme was launched specifically to promote Investment made towards girl child for her future upbringing in rural sector.
Customers who do not wish to take any equity risk, and wants to earn a return higher than Bank FD, can opt for this scheme, as one of the many options available in the market. But with a capping of 1.5 lacs per year, per child (only for two).
Disclaimer: Investment in securities, including mutual funds, variable annuities or variable life Insurance, is subject to market risks, including the potential loss of principle and fluctuation in value. Past performance does not guarantee future results. You should consider the Investment objectives, risks, charges and expenses of investment securities carefully before investing. Read the prospectus carefully before investing.Insurance is a subject matter of solicitation.
He is an expert with numbers. Formulas & analytics.