When it comes to planning your child’s future, it includes not only saving funds but also making wise financial decisions that will allow you to meet your long-term objectives. The two main options available are dedicated child plans or mutual funds, & both have their own pros & cons. But, how to decide which one is truly the best child investment plan that will help you fulfil all your needs?
What is a Child Insurance Plan?
A child insurance plan takes care of the financial future of a child, which not only secures the financial future but also offers a flexible payout. The funds secured for the child’s future can be used for expenses, such as marriage, education, etc. A part of the premium is allocated towards investments, which can be used to build a corpus for their education, marriage, etc. Another part of the premium is allocated towards insurance, which ensures the financial security of a child in case of the sudden demise of the parent.
What are Mutual Funds?
Mutual Funds are considered to be investment pools, where funds are collected from multiple investors & invested in a diversified portfolio of assets. The investors are supposed to share the profits & losses of the whole fund equally. Due to this shared ownership, these funds are known as “Mutual Funds”.
Difference between Dedicated Child Plans & Mutual Fund Schemes
Provided are the differences between dedicated child plans & mutual fund schemes:
| Basis of Difference | Dedicated Child Plans | Mutual Fund Schemes |
| Financial Support | These plans help build a steady investment for your child over their tenure. Making regular premium payments ensures a commitment by the insurance company to provide financial assistance for children at different milestones, such as higher studies, shifting abroad, marriage, etc. | It does not promise consistency in returns, i.e. no guaranteed returns. This is due to them being linked to the market, & fluctuations in the market lead to depreciation in their value, leading to losses. |
| Risk Appetite | This plan offers a dual benefit of insurance plus investment, where a part of the funds is allocated towards market securities, such as equity, debt, etc. Hence, a child investment plan always includes security where the insurer invests the policyholder’s funds, depending on their risk tolerance level. | This best suits individuals who are willing to take more risks to get more returns, as mutual funds are subject to market risks. |
| Waiver of Premium Benefit | In case of the sudden demise of the policyholder, the policy still remains active throughout its tenure. The insurance company waives off the future premium amount; additionally, the child will also receive the maturity benefit amount once the policy tenure is complete. | No benefit under mutual fund schemes. |
| Partial Withdrawal Facility | In case any unplanned emergency arises, the insurance company allows for partial withdrawal of funds. | It comes with a lock-in period, hence no partial withdrawals are allowed. |
| Taxation Benefits | The premium amount paid towards the child plan is eligible for tax deduction u/s 80C of the Income Tax Act, 1961. Additionally, the maturity benefits are also exempt from tax u/s 10(10D) of the Income Tax Act, 1961. | Investments made in mutual funds up to INR 1,50,000 are eligible for a deduction of tax u/s 80C. Additionally, a tax of 10% will be applicable on long-term capital gains above INR 1 lakh, reducing the overall return amount on investments made. |
| Objective of Investment | To provide financial security & meet future child educational expenses. | To achieve LTCG & higher returns in comparison to traditional savings plans. |
| Lock-in Period | Between 5-10 years | No lock-in period |
| Returns | As low as 6-10% per annum | 10-15% per annum |
Child Plan Vs. Mutual Funds: Which is Better?
When it comes to securing your child’s future, it is pretty obvious that child plans are far superior. They offer financial security,which ensures the financial objectives will be met in the policyholder’s absence. For parents who want stability & protection, they often see these plans as one of the best saving schemes. The mutual fund investment is entirely dependent upon the performance of the market, which means that if the stock market declines, the performance of the mutual fund will also be affected & will suffer losses.
Provided are the reasons why a child insurance plan is preferred over mutual funds:
Helps Meet Your Children’s Education Costs
With the rising education costs, it becomes mandatory to plan your child’s education well in advance. By the time your child reaches college, the higher education expenses will be unbearable. Hence, contributing regularly to a child’s plan will help you accumulate the funds for future educational costs.
Covers the Costs of Medical Treatments for Your Children
Healthcare costs are also reaching sky-high; hence, to meet the unforeseen health-related costs, it becomes important to plan for these costs. Child plans include the treatment costs, medical costs, &offering you support during your bad times.
Provides Tax Benefits
The premium amount paid towards the child plan is eligible for tax deduction u/s 80C of the Income Tax Act, 1961, maximum up to INR 1,50,000. Additionally, the maturity benefits are also exempt from tax u/s 10(10D) of the Income Tax Act, 1961.
Offers Premium Waiver Benefit
In case of the sudden demise of the policyholder, the policy still remains active throughout its tenure. The insurance company waives off the future premium amount; additionally, the child will also receive the maturity benefit amount once the policy tenure is complete.
Conclusion
If you want guaranteed returns, disciplined savings, & consistent returns along with insurance coverage, opt for a child plan. On the contrary, if you are willing to accept market-related risks & want to achieve growth in wealth over a long tenure period, opt for mutual funds.
A child investment plan is meant to fulfil the future financial requirements of a child by providing dual benefits of savings & insurance, hence leading to the creation of wealth. The corpus accumulated can be used for a child’s education, marriage, or any other additional requirements, even in the absence of a parent.
Namaste UI collaborates closely with clients to develop tailored guest posting strategies that align with their unique goals and target audiences. Their commitment to delivering high-quality, niche-specific content ensures that each guest post not only meets but exceeds the expectations of both clients and the hosting platforms. Connect with us on social media for the latest updates on guest posting trends, outreach strategies, and digital marketing tips. For any types of guest posting services, contact us on info[at]namasteui.com.