It’s common for young parents to wonder if they have enough savings or a well-balanced portfolio to fulfil their child’s education and career goal. The answer, however, is not as straightforward as it seems. Vivek Jain, Business Head- Investments, Policybazaar.com, shares his knowledge secureing your child’s financial future and the investment options you may opt for.
“So, let’s try and gauge this cost considering education inflation in both domestic and international universities. The education inflation has witnessed a 10-12 per cent hike over the past few years. So, if your teenager aims to become a doctor by pursuing a four-year MBBS course from an Indian institute, the average cost will be up to Rs 80-85 lakh. For an international college, the expense for the same will be around Rs 2 crore+. Talking about to an MBA course, last decade, the fees at top grade colleges was Rs 13 lakh, whereas now it is over Rs 20 lakh+ for a two-year program. So, you would need a corpus of at least Rs 1 crore for your child to achieve his or her educational goal,” Vivek Jain explained.
“Also, the buck doesn’t just stop at education. You would need enough funds to suffice their life milestones too, like wedding. One needs to think and act early if they want to secure a promising future for children amid this inflation. All you require to do as a parent is to invest early and get a longer time frame to develop a valuable corpus in insurance-cum-investment child plans to safeguard their future, even in your absence. Several of these child plans come with a great in-built feature of waiver of premium, which means that future premiums are waived off and taken care of by the insurer in case of the policyholder’s unfortunate demise. This allows the policy benefits to continue as usual, thereby securing the child’s future. Here are a few options to consider,” Jain added.
“Unit Linked Insurance Plan or ULIP is a great option covering two essential features – investment and life insurance, which allows building an adequate corpus for your child’s education and aspirations even in your absence. This is best suited for those with varied risk appetite as it gives policyholder the flexibility to alter the asset mix at any time, i.e. swap from an equity to debt and vice versa. It also grants waiving off the premium feature in case of parent’s death and pays the entire amount on maturing of the policy. The premium paid too is eligible for tax deduction under Section 80C, and so is the return on investment. Also, up to Rs 2.5 lakh annual premium, the maturity amount is also tax-free. ULIP can generate a return of up to 12-15% depending on the investment and market situation,” as per Jain.
Guaranteed return plans
“As a parent, if a risk-free and reliable investment policy is your calling, then guaranteed return plans should be on your radar instead of the traditional option fixed deposits (FDs). The guaranteed return plans factor in the power of compounding to ensure the policyholder gets a guaranteed return rate regardless of unfavourable market situations like inflation or financial downturn. Furthermore, a fixed premium is locked at the beginning of the term, which gives the insured a fair view of the expected return from this plan. In addition, it keeps the original investment intact, thereby providing the dependents monetary safety. Guaranteed return plans offer up to 6.4% return, depending on terms and conditions. Unlike FD, the return gained on investment is not taxable. The waiver of premium feature in case of policyholder’s demise applies to this plan as well,” he suggested.
Capital Guarantee Plans
“The above two plans cater to two different kinds of investors – risk-takers and conservatives. However, if you are a little bit of both, then a capital guarantee plan should be the best choice for you. Offering the best of both worlds, these plans are a hybrid of ULIPs and Guaranteed Return Products. While the plan assures capital protection against market volatility by investing 50-60% in debt, they also fetch you returns from the upside of the market by investing the remainder in equity. Also, a 100% guarantee on premiums paid during the policy tenure make them a good long-term investment option. Similar to the plans mentioned earlier, the waiver of premium feature is available for this plan as well,” he opined.
“To conclude, planning for your child’s financial safety is every parent’s dream, and with various options around, building the right portfolio can become tricky. Therefore, it is paramount to compare several plans online and compare them to your goal so you can pick the right one. Also, when selecting the policy, check for these aspects – inflation, life insurance benefits, meeting short-term and long-term objectives and easy withdrawal along with constructing a sizeable corpus. The huge USP of insurance-cum-investment child plans is that they cast a financial safety net to protect your child within your lifetime and even in your absence,” he concluded.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)