With education costs on the rise, and the ever-growing desire to get your child the best of everything that there is, investing in child plans seems like the most viable option. For this reason alone, many parents today tend to invest in all sorts of child plans that they think will help them get the best for their children. No doubt, this is a good thing. However, although these plans provide a sense of security when you look at the long-term returns, they are utterly poor. This is because expenses that are linked with investing in them tend to reduce the returns.
Exactly how much investment your child needs?
As a parent, you ought to think about your child’s future and how to secure it. But the question is, how do you calculate your child’s education expenses? This is one of the major concern parents have these days. However, there are a few things you can keep in mind while searching for one of the best investment options as per requirement.
- Your kid’s age
Your kid or child’s age is one of the most important deciding factors that tells you how much you will need to invest. This, in turn, leads to another deciding factor. The number of years remaining for your kid to go to college.
- The number of years remaining before your kid goes off to college
Depending on the current age of your kid, calculate the number of years remaining for him or her to attend college, and plan your investments accordingly. So, keeping this child investment determining factor in mind, you can manage your funds for investments as per the requirements.
- The current cost of education
This is yet again another one of the most important determining factors for investing in child plans. Knowing the current cost of education lets you evaluate what the education costs would be by the time your child comes of age. This way, you can plan exactly as to when you should start investing for your kid’s college education.
- Education inflation
The costs of education, especially higher education is rising by the day. So, education inflation is something you cannot simply overlook when planning to invest in a child plan. Just try to calculate at what rate the education costs are rising each year. By knowing the value at which the education costs are on the rise, you can manage your funds accordingly, so that you can invest in a good child plan for your kid’s college education.
Best child investment plans
A vanilla term insurance plan might prove to be the best option for your family, in case of your sudden death. This comes as helpful, especially for your children and their future, since this type of plan takes care of everything. However, in case you are also considering other options, here are a few good plans you can invest in, to secure your child’s future and education.
This is one of the best schemes that you can invest in. And for good reasons too. First off, this scheme is for a tenure of 15 years, which means that you will have plenty of time to build yourself a solid corpus to secure your child’s education. Second, this plan is offered at an interest rate of eight percent as opposed to other plans, which offers interest rates of about 7.5 percent or so.
And lastly, the interest earned on this plan is not taxable, which makes this scheme essentially tax-free. In addition, you can also avail an income tax rebate of up to Rs. 1.5 lakhs. So, doesn’t all of this make it a wonderful scheme to invest in? It surely does, doesn’t it?
- Investing in gold savings
Gold is also one of the better investment options to secure your child’s future. However, investing in physical gold can be prone to risks. So, the option you have when it comes to investing in gold is those gold ETFs, since they don’t charge for locker and storage facilities. You can likewise invest in the electronic form of gold and be free from or have little concern about the risk of theft.
By investing small amounts into gold every month, you can build a rather large, sizeable corpus. Eventually, gold helps you gain more returns as compared to other asset classes. However, one of the major disadvantages of investing in gold is the capital gains taxes you will have to pay when you decide to sell. Nevertheless, you can hold gold for about 10-15 years to get some good returns. Then there is also the risk of gold prices falling. However, gold prices have nonetheless continued to soar over the course of time.
- Invest in equity mutual funds
When someone thinks of investing in child plans, the first thing that comes to their minds is equity mutual funds. However, mutual funds don’t come without risks. One of the major risks equity mutual funds pose is the uncertainty of the markets at the time of redemption.
What this basically means is that, suppose you want to redeem some equity mutual you have invested now, after a period of five years. But you wouldn’t know whether the market will crash or soar at the time. So, there is uncertainty regarding redeeming the funds at a future date.
If you’re one of those long-term investors, then there is no doubt that mutual funds are one of the best options you can go for, and that they do tend to give you higher returns. However, equity mutual funds are subject to different kinds of tax, thereby reducing the returns you get from them.
These can also pose to be risky due to the uncertainty of the markets during the time of redemption.
- Investing in debt mutual funds
There are some debt mutual funds that offer better returns than plain bank deposits. They also tend to save you more taxes than regular bank deposits. All these make them a tempting option to invest in. However, you need to make sure that you go for child plans that are safe.
You will need to first look at what debt mutual funds offer better returns for a long-term investment. This is because debt mutual funds tend to give better returns for long-term investments. Debt mutual funds that are secured by a AAA title provide some respite even during the event of a market crash.
Is 7-8 years a good investment horizon for child plans?
Suppose you have a child who is currently 11 years old. Then this means that you only have five or six years before your child goes off to college. What this implies is that investing at a time like that would make no sense. This is because five years may prove to be a short period of time for you to get good returns. So, in this case, the better option would be to go for a single premium endowment plan or even mutual funds.
Also, in case you go for the mutual fund option, it is recommended that it is backed up by a term life insurance plan. However, in case your child plan investment horizon is 7 or 8 years or so, you can always go for a child plan with a premium waiver.
There are some plans in which the sum assured increases at various milestones of your life, such as, at the time of your child’s marriage, the birth of your child, etc. And then there are certain plans which allow you to increase the term of the policy, but pose certain risks such as medical or financial underwriting. One of the simplest solutions for this is to go for a new term plan.
And as far as saving taxes are concerned, it may be one of the most reasonable rationales behind buying term insurance but should not be the only one. In an ideal situation, you should buy a term insurance that lasts for the entirety of your working life. That is, if you are currently 26 years of age, and plan to retire at the age of 60, then the tenure of your term insurance should be for 34 years.
Of course, there are a lot of options that are available today, that allows you to increase your cover based on the different stages of your life.
There are plenty of reasons why you as a parent, should invest in child plans. It is the duty of every parent to pay for their children’s education, not to mention, their marriage. But investment in child plans is done for other reasons too. One of the most prominent reasons includes securing the child’s future. Investing in child plans, not only helps with your child’s education or marriage, but it also gives them a sense of financial security, in case you are not there for them in the future. However, it is best if you seek help from an expert before you go off making your first investment.