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Investing in a Child Education Plan

By Finserv MARKETS - Aug 19,2019
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Child Plans To Counter Rising Education Cost.

In 2018, a premier Indian business schools flagship two year course cost Rs 21 lakh. What is to be noted is that if a student enrolled in the same course 10 years back, he would have to pay just Rs 6 lakh. This is to elucidate that with the rise in education inflation estimated from 10 to 12 percent on an average annually, what you have saved for your child’s higher studies might not equal to future costs. The same course 10 years ahead would be priced at thrice of what it is now. If you are a parent compromising your own financial independence to fund your child’s education, consider this. What if you could never take a loan, exhaust your assets or dip into your retirement savings and yet give your child the best education? Sounds like a dream doesn’t it? Read on.

Child education plans are insurance plans that offer the double benefit of savings with protection to ensure that you dream big for your children. Categorized as ULIPs, these plans come with a host of additional benefits as compared to traditional savings instruments. Here are a few:

1.Choose your risk-return profile

Being market linked, child insurance plans invest your money in equity and/or debt funds and give you the power to customize your portfolio as per your risk appetite. So, for instance if you prefer more stable returns, you can opt for the debt option, and if you want to ride the markets, go for the equity option. Better still, if you want to get the benefit of both, balanced funds are there to rescue.

2.Hand holding with premium waiver

You might pay your premiums without fail, but who will provide for your child’s education when you are gone? Don’t worry because your child insurance plan is going to take care of it. In the eventuality of the policyholder’s demise, the rest of the premiums are paid by the company on your behalf so that your child can get the total sum at the time of maturity and his/her education is not hampered.

3.Guaranteed benefits and add-ons

Take a breather and relax as your child’s education plan takes your worries away by promising a guaranteed pay out on maturity. In case you want to make a lump sum partial withdrawal, you can do so, provided you stay invested for at least five years. Some child insurance plans offer benefit of a return enhancer of 0.5 per cent, under the eettlement option. Which means in each ensuing installment, the amount paid out to you or your child will be the outstanding fund value on the date of installment, divided by the number of outstanding installments, hiked up by 0.5 per cent.

4.Save tax

Unlike Fixed deposits, the traditional savings plan since long, not only are the premiums that paid for child education plans tax-free under section 80C as well as the maturity value is too, under section 10(10D) of the Income Tax Act, 1961. This is a big relief for salaried individuals.

5.Sit back as your fund works for you

If you are not comfortable actively managing your fund, you can let the experts do the job and help create wealth for you. Opt for the Wheel of Life Portfolio Strategy on Finserv MARKETS and allocate premiums among five different funds in pre-defined ratios. These ratios change with coming years. On the other hand, a Trigger-Based Portfolio Strategy parks funds in Equity Growth Fund II and Bond Funds in a ratio of 75:25, which is subject to change on a predefined trigger event.

In a world that is getting increasingly competitive, you wouldn’t want your child to lag behind, even as you wouldn’t want him/her to be a part of the rat race. A child plan, helps you to be prepared for your children’s future and give them the wings that they need to succeed in life. It is an excellent example of the power of investing- start small, be consistent and reap the rewards. So take those first steps away from a life of financial burden to a life of financial independence and secure your kids’ tomorrow.

Also read in detail about the ULIP tax benefits you can avail with a Bajaj Allianz ULIP plans available on Finserv MARKETS.

To know more on ULIP investments in depth, you can check out these blogs:

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