My two-year-old is already taking tiny steps to his playschool. I love the fact that he enjoys being in school and taking an active part in most of the playgroup activities. As a responsible parent, I understand the importance of exposing him to the quality education, right from the beginning. But to continue to offer the best, all through the education, I need to be financially stable. I realized that there should not be a delay in my preparation and thus, considered planning for child education early on.
Like most parents, I looked for child plans. The agent who sells child plans suggested one that covers approximately INR 24,00,000 with an annual premium of INR 56,000 for 21 years. It sounded coherent and tempting.
When I almost decided to go ahead with it, a good friend of mine suggested that mutual fund investments are better, given the 18-year time that I have for my little one to get to higher education. It made me give a second thought and I sought for more information from her, as she invests regularly using the holistic advice from online financial advisors, ArthaYantra.
My learning about Mutual Funds, made me realize how biased I was towards SIPs. After the detailed review of my friend’s investments performance, I understood that ‘equity-linked investments are volatile, yet longer investment horizon with well-diversified portfolio makes the expected returns more certain.’
Let’s compare the two – Mutual Funds Vs Child Plans
Refer to the table below, we can clearly see that Mutual Funds yield far better results compared to popular Child Plans available in the market. Considering the amount invested in both policies to be same over 16 years, we see huge variations in returns between the two investments.
Table 1.1: Mutual Funds Vs Child Plans
So, what exactly are child plans and how do they differ from Mutual Funds?
In simple words, child plans are just insurance policies. They are either unit-linked insurance plans or traditional policies where one parent would be the policy-holder and the child would be the nominee.
- If the policy-holder makes all the premium payments and survives the entire tenure, he or she receives periodic payments at predefined intervals.
- In a case of the policy holder’s unexpected death, the nominee gets the proceedings.
Whereas, Mutual Fund Investments are systematic investment plans with disciplined monthly investments, made by an individual towards a diversified portfolio.
A well-diversified and well-planned Mutual Funds offer:
- enough returns to meet the expected future cost of child’s education, after beating inflation
- adequate insurance risk coverage
- cost-efficient term policies as seen in table 1.1
I also learned that ArthaYantra, suggests a personalized portfolio based on the investment horizon and risk appetite that helps yield better results in long run.
Thus, financial discipline and a well-diversified portfolio allow an individual to achieve far greater benefits through mutual funds, compared to existing child plans. The returns help meet the ever-rising cost of child education and other money needs.
As many of us, like me, do not have sufficient knowledge to build our own portfolios to meet our goals of child’s future. I would recommend that we explore fiduciary advisors like ArthaYantra to get a comprehensive advice and start saving for our child’s education goal.