Since we as parents always want the best for our kids, particularly when it comes to school, the sharp increase in the price of education is concerning. Due of this, a lot of parents are now looking into different investing alternatives in order to pay for their kids’ education.
Child Education Plans are among the most popular investment alternatives in India. These plans are intended to offer financial assistance to cover the cost of your child’s postsecondary education.
In this blog, we will discuss what Child Education Plans are, their types and features, and whether they are a good option to fund your child’s higher education expenses.
Importance of child investment plans
Child investment plans assist both you and your child in making financial preparations for unforeseen medical emergencies, rising educational expenses, and unfortunate events.
You should start thinking for your child’s future as soon as it is practical. This mitigates the related risks and extends the period during which your assets can appreciate.
1. Funding for children’s education
Planning for higher education is crucial to securing your child’s future since, as they get older, a sizable amount of your finances will go toward funding their education.
By investing in your child’s education, you may be able to provide the necessary funds to enable them to pursue their dream career. Every day counts when it comes to being financially ready for your child’s education because college expenses are rising.
Speak with our professionals at EduFund to see how you may start saving up to 2.5 Cr right now.
2. Flexibility to withdraw part of funds
By selecting a child investment plan that gives you the freedom to withdraw funds as per your kid’s requirements, you may easily access a portion of your funds while the remainder of your investments continue to grow.
3. Protection against uncertain times
One benefit of many of the top child education plans is the availability of premium waivers. This eliminates the need for premium payments in the unfortunate event that something negative occurs.
The investment grows without requiring premium payments and gives a lump sum payoff upon maturity. This ensures that your child’s dreams will always be safeguarded.
Benefits of child saving plans
1. Financial security
Kids’ savings plans provide a claim amount as a lump sum payout in the case of an unforeseen disaster.
All future premium payments are the responsibility of the life insurance company, and the plan remains in force. The payout obtained following the insurance period ensures that your kids’ desires will always be fulfilled.
2. Tax benefits
Furthermore, Section 80C tax benefits are offered by these plans for premiums paid up to INR 1.5 lakh per a fiscal year.
As per the Income Tax Act of 1961’s Section 10(10D), the payout obtained beyond the policy period is also exempt from taxes.
3. Education costs benefits
When asked what their biggest concern is for their child’s future, almost all parents will joke about how costly education has gotten in the contemporary world.
The expense of sending your child to a good school is money. Furthermore, as time goes on, your child might decide to pursue alternative, more expensive forms of schooling.
If you make prudent financial decisions and sign up for a child insurance plan that develops over these seasons, your financial burden will be reduced.
4. Withdraw part of the funds
Child plans offer maturity benefits in the form of a lump sum payment after the policy term. Depending on when your child may need money in the future, you can determine when they are mature.
Over the period, your investment builds up a sizable corpus that can be used to support your child’s aspirations.
5. A habit of saving
Childcare plans, as we’ve seen, combine the advantages of investment and insurance. Before investing in a child care plan, review your financial plan and determine how much money you’ll need at each stage of life.
Decide what you want to save the money for: a wedding, college, elementary and secondary schooling, etc. In addition, assess your other commitments, such a mortgage, and select an insurance policy that best fits your overall financial plan.
Making monthly premium payments may first seem like a hassle, but in the long run, it will establish a habit that will benefit you when your child becomes older.
Types of Child investment plans for girl and boy child
There are several child investing plans to take into account the specific objectives of your child. You can select one or more kid investing programs to provide your child with an advantage based on your risk assessment, time horizon, and your child’s educational objective. The various kinds of child investment programs that you should take into account are as follows:
1. Sukanya Samriddhi Yojana
For parents of a girl child, the Sukanya Samriddhi Yojana is a special child investment scheme. The Indian government is offering this to encourage parents to start saving and investing in their girls at a young age.
The primary goal of the SSY program is to persuade parents to invest a significant amount of money in a plan for their daughters’ future marriage and education.
Those who are parents of girls under 10 years old can contribute to the SSY program. The 21-year investment in the SSY program is fixed after the account opens.
The parent has a total of 15 years to make investments after the account is started. Section 80C of the Income Tax Act of 1961 allows for tax deductions on investments made in SSY accounts.
A minimum of ₹250 must be invested annually, and a maximum of ₹1,50,000 may be invested. Any branch of an approved bank or the India Post Office accepts the opening and use of SSY accounts.
2. Equity Mutual Funds
If you have at least 15 to 20 years till retirement and your child is still tiny, now is a great time to start investing in mutual funds with stocks.
This makes it possible for you to endure shocks such as volatility and stock market failures. Since equity investment requires technical knowledge and the ability to stay current, it is not for everyone.
Therefore, selecting mutual funds for stocks is the superior choice.
These are overseen by experts who know how to select the safest stocks while ensuring that your investment appreciates over time.
You can create an equity mutual fund portfolio specifically for your child’s education. You can achieve this when your child reaches the age of four or five by opening an account just for them and selecting Systematic Investment Plans (SIPs) in riskier items like mutual funds with stocks.
Then, when you and your child get older, you can adopt a more cautious strategy.
3. Public provident fund (PPF)
Even after the government reduced the return rates on provident fund accounts, parents still prefer PPF.
PPF deposits encourage discipline because you are unable to access the corpus until the end of the 15-year maturity period. Due to the tax-free nature of the principle, interest, and total maturity amount, you are able to use your corpus for educational reasons.
Because PPFs are backed by the government, you can feel confident knowing that your money is protected. However, depending solely on PPFs may pose cash flow issues because their official interest rates have already dropped.
To avoid this, increase the returns on your investments. Select a well-rounded investment plan for your child’s future that consists of both PPFs and Unit Linked Insurance Plans (ULIPS).
4. Direct Equity
Investing in direct equities, also known as stock investing, is arguably the best method. Purchasing stock in a firm gives you a stake in it.
It is your own responsibility to provide the capital needed for the company’s expansion. Making money from your investment requires the time and market expertise you possess.
Stocks from publicly traded corporations are offered on reliable stock exchanges. The best long-term investments are stocks. Since shares are influenced by a number of commercial and economic circumstances, you must actively manage your assets.
You also need to be willing to take on the accompanying risks and understand that returns are not assured.
5. Fixed Deposits
One kind of investment is FDs, which are offered by banks and other financial institutions. After placing a deposit, you are eligible to receive a fixed rate of interest for a predefined period of time.
Fixed deposits provide comprehensive capital protection and guaranteed returns when compared to mutual funds and stocks.
But since the incentives are still the same, you give in. The RBI’s policy review decisions set the interest rate on fixed deposits, which is set by the banks and varies according on the state of the economy.
Even though fixed deposits are often locked-in investments, investors frequently accept them as collateral for loans or overdraft facilities. There’s also a fixed deposit with a 5-year lock-in and tax benefits.
6. Employee Provident Fund
One investment instrument designed for retirement is the Employee Provident Fund (EPF), which allows salaried individuals to benefit from a tax credit under Section 80C of the Income Tax Act of 1961.
Employers frequently match employee deductions, which are usually made as a proportion of monthly salaries, with EPF contributions.
The EPF withdrawal corpus is totally tax-free at maturity. Additionally, the Indian government guarantees your EPF deposits and sets the quarterly EPF rates.
8. National Pension System
A more contemporary option for tax-saving investing is the National Pension System (NPS). Subscribers to NPS plans might expect larger returns than PPF or EPF, but they must remain committed until retirement.
This is accurate given that stock investments are one of the plan options offered by the NPS. It is necessary to use a portion of the tax-exempt NPS maturity corpus to buy an annuity that would provide the investor with a regular pension.
There is no better gift that a parent can give to their child than the promise of a secure future.
There are critical aspects that a parent should never ignore like the rising cost of education, stationary, books, medical expenses, etc.
Here are some of the best-saving child education plans:
- UTI CCF – Investment Plan – Growth Direct child plan
- Tata Young Citizens’ Fund Direct-Growth Child Plan
- HDFC Children Gift Fund Direct Plan Child plan
- Axis Children’s Gift Direct No Lock in Growth Child plan
- SBI Magnum Children’s Benefit Fund Direct-Growth Child plan
- Aditya Birla Sun Life Bal Bhavishya Yogna Direct-Growth child plan
- LIC MF Children Gift Fund Direct Plan Child plan
