As a parent, you would always want your child to have a bright future. You want your child to fulfil all his or her dreams. You want to send your child to the best school in the city, you want him or her to pursue higher education and have a great career ahead. But the rising cost of education has made it difficult for many middle class parents to afford the best school and the best college for their children.
Under the influence of globalization and inflation, the cost of higher education is rising 10-12% every year. Inflation is a real problem. The only solution, however, is proper financial planning. You need to manage your finances in such a way that would help you save a certain amount of money every month without compromising on your standard of living. Saving is not enough, you should also think of growing your money. Investment is the best option to create wealth for future.
There are a number of investment instruments through which you can grow your money for future. Following are five best investment options with which you will be able to ensure a financially secure future for your child.
Child Insurance plan
If it is about your child’s future, it is best to invest in a child plan. Almost all reputed Insurance companies offer child plans and most of them are quite affordable. There are different types of child plans. Some child plans are end to end investment plans that provide market-linked returns. Though they are riskier than non unit-linked child plans, but they always offer better returns on maturity. There is also another type of child plan that are not market-linked products, but they participate in the profit of the insurance company, and pay you the accrued bonuses additionally with the maturity benefits. Whatever be the type of the plan, a child plan helps secure your child’s future even if you are not around anymore. On the maturity of the plan, your child starts receiving the guaranteed payouts from the insurer in periodic instalments. These will help your child meet the various financial needs in the different phases of his or her life. Moreover, in case of your death, your child will receive the death benefit and all future premiums will be waived off.
Child Education Plan
A child education plan is a type of child plan. But there are subtle differences between child education plan and child insurance. Child education plans are mostly short-term investment plan whereas child insurance plans are long term. While the death benefit is an important part of a child insurance plan, a child education plan may not offer any sum assured on the death of the policyholder. But in case of your death, all future premiums will be paid by the insurer on your behalf and the policy will continue to accrue bonuses until the date of maturity. As soon as the policy matures, your child will receive the sum assured and the bonuses (if any). The sum assured may be paid out in instalments so that your child never faces any financial difficulties in continuing higher studies. A child education plan may be expensive but the maturity benefit it generally offers a large sum assured so that your child’s education never get hindered by any unforeseen unfortunate event in the future.
Term Insurance plan
Many people prefer term insurance plan over child plans. As said earlier, a child education plan may not offer sum assured on the death of the policyholder who is a parent or grandparent of the child. In that case many people prefer to buy a term insurance plan which provides a lump sum assured on the death of the policyholder. The death benefit amount of a term plan is much higher than that of a child plan. Moreover, a child plans much costlier in comparison to a term insurance plan. A term insurance plan is a risk-free investment and is the best way to keep your family prepared financially for any type of unfortunate event in the future. The only downside is that a term plan provides no maturity or survival benefit. As the survival benefit you can get all your premiums back if you have already added TROP facility with your basic term plan.
Mutual funds are the best investment instrument that helps create huge wealth. You have to open a mutual fund account with a trusted MF company and start investing in your money. You can allocate your assets based on your risk appetite. Mutual funds can best be described as a pool of funds created by small investments made by multiple individuals in order to invest in equities and debt instruments traded on the stock exchange. Some mutual funds are usually preferred as investment route by individuals as they provide taxation benefits under sec 80C. These are commonly termed as ELSS (Equity Linked Savings Scheme) and can help you create a corpus for the higher education of your children along with the tax exemption on principal interest and the maturity amount. Because of the huge percentage of returns offered by mutual funds, people prefer mutual funds over insurance plans. Many people consider investing in term insurance plan + mutual funds as the best way to secure their children’s future financially.
Unit linked Insurance Plans
ULIPs or Unit Linked Insurance Plans are investment cum insurance products offered by insurance companies. Returns from ULIPs are generally lower than ELSS but higher than normal insurance plans. So, it is better to invest in Unit-Linked child education plans as that would give you better returns than non-linked products. As it is a market linked products, ULIPs involve certain amounts of risks, but if the market performs well, chances of getting huge returns are quite high. There is an initial lock-in period of five years which allows your money to grow, and it is better not to withdraw from your corpus before the maturity of the policy. Added to this, Unit Linked plans offers life cover which is very important to tackle the uncertainties of life. Some ULIP products also provide rider options to strengthen your protection.
Above are the five best ways to invest in your money for a financially secure the future of your child. However, among them above mentioned ones, Mutual Funds offer no life coverage, whereas term plan and Child plans provides death benefit in case of your death. However, we would suggest investing in child education plans as they are tailor made to provide all sorts of financial supports your child need for pursuing higher education.
For further information on different child plans you can visit the homepages of different insurance companies where you will find detailed information about all the plans they offer.