All You Want to Know About Child Investment Plans

Vijay Kuppa
Vijay Kuppa
vijay@orowealth.com
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Financial investments require utmost attention, careful consideration, and in-depth market research. When it comes to choosing an investment for child, investors have to be careful and judicious while finalizing choices. Precise assessment of market risks, plan benefits, and financial returns will play a key role in the right investment plan selection.

The Key Pointers for Investments for Child

While planning for investments for child, what are the crucial factors that pop up in parents’ mind? It’s their goals, objectives, and time-frame that determine the choice of child investment plans. Most of them consider financial investment to be an integral part of securing a child’s future. Be it completing education and fulfilling higher aspirations or arranging for their marriage, the right investment for child will help the person sail through various stages of life.

A quick look at market stats will reveal that most of the parents i.e. 62.9% make investments when their child is within 0-3 years of age, substantially more than 9.2% of parents who plan investments before childbirth.

Expected returns

Financial investments for child are quite different from other plans when it comes to features and highlights. It is imperative to breeze through the various plans and check the returns before nailing down your choice. Here are some of the thoughts that haunt a parent’s mind:
• Capital Safety
• Tax-free returns
• High-growth
• Assured income

Almost 46.59% of parents think of returns while making investments for their little ones. However, issues like the absence of efficient investment and wealth creation professionals, ever-increasing educational expenses, and starting off with the planning too late can affect their investment bottom lines.

Features to look for while Choosing Investment for Child

Choosing the right plan for your child is highly crucial. You need to go through the highlights, learn about the significant features, and then opt for the apt plan that caters to a child’s essential needs. Some essential characteristics that define which child plan to take include –

a. Your objectives: Out of the multiple objectives you need to choose one or two objectives that are core to the investment you will be doing. Defining it clearly will be important before you choose an investment plan

b. Investment horizon: Based on the objective, you need to determine what should be the horizon of the investment. So, if you are blessed with a baby recently, you can go for an equity-based mutual fund with a long-term investment objective of 10-15 years. This will help you build a corpus by the time the child is ready for college.

c. Your income level: You need to factor in current income levels so that the monthly or regular payments are comfortably done without choking your overall financial stability. With an increase in salary, you should aim to increase the investment amount too.

These aspects underline the basics of an idea child plan. Without crystal clear ideas of these factors and knowledge of the crucial highlights, it won’t be possible to identify the right avenues for investment for child.

Identifying Investment Avenues

Knowing about the profitable avenues and right investment for child will help you secure your kid’s future. Here are some of the innovative and appropriate plans for individuals planning to make the investment for child.

investment for child

i. Term plans coupled with Mutual funds

This is perhaps the perfect amalgamation of high security and solid investments. You are not only left with high corpus but also have the opportunity to exit the plan whenever you deem right. Optimum transparency and flexibility are the major highlights of this plan.

ii. Gold ETFs

Gold ETFs are equivalent to 1 gram gold and are similar to mutual fund units. You can buy and sell them via depository and through a DEMAT account. Those wishing to achieve better liquidity compared to other investment channels will find the perfect provisions. Gold ETFs are also termed as ‘paper gold’ that come without the issue of safe-keeping.

iii. ETFs and Stocks

If invested in the right channel with wisdom, stocks can fetch you highest returns. However, expert advice will always be essential as stock returns depend a lot on market-related risks. ETFs resemble stock in many ways. These investment options are transparent and lets you plan an Investment for Child judiciously.

iv. PPF or FD

If you want a long-term plan that ensures maximum tax savings, nothing can get better than PPF or Public Provident Fund. You can reap the benefits of investing up to 1 lakh per year, and the amount gets matured after a span of 15 years. Investors will also have the option to extend tenures in 5-year blocks. FDs on the other end can give you interest payments on fixed amounts. You can either get them every month or on a quarterly basis.

v. Effective child plans

Most of the parents opt for child insurance plans, as these policies benefit the children even after the policyholder’s death. After the deceased, it is the insurance company that takes up the responsibility of investments and waivers are offered for premiums too. Depending on policy terms, the child will receive payments regularly thus gaining the freedom to carry on with his educational plans. Child plans have been quite popular because of their flexibility, high security, and assured returns.

What channels are available in investment for a child?

Based on your wealth creation horizon, your end goals, your income levels, and the age of the child, you can look at multiple investment vehicles like mutual funds, fixed income plans, or life insurance options. Check the table below for a comprehensive to choosing effective plans for your child:

Plan Name Category 1 year returns (%) 3 year returns (%) 5 year returns (%) Fund Value in 5 years for Rs. 10000/- invested monthly 
SBI MAGNUM GLOBAL FUND – GROWTH Equity 16.25 10.61 23.68 1059955 /-
ADITYA BIRLA SUN LIFE EQUITY FUND – GROWTH Equity 8.75 16.75 25.47 1105184 /-
ADITYA BIRLA SUN LIFE FRONTLINE EQUITY FUND – REGULAR – GROWTH Equity 9.26 13.88 20.11 974683 /-
ADITYA BIRLA SUN LIFE FOCUSED EQUITY FUND – GROWTH Equity 7.90 13.49 20.54 984606 /-
BNP PARIBAS LARGE CAP FUND – GROWTH Equity 8.82 10.62 18.26 932938 /-

SUKANYA SAMRIDHI YOJANA is a government-backed scheme for the girl child that ensures 8.1% compounded interest per annum. The premium amount is 250INR now, which is much lower than the initial amount at 1000INR.

Plan Name Category
BIRLA SUNLIFE WEALTH ASSURE PLAN Unit Linked

This particular child insurance plan has quite a few highlights and salient features. Investors should be knowledgeable about them before making the final investment. One can hope for guaranteed additions and a wide range of investment choices. Since the minimum premium is at 1lac per annum, it happens to be a flexible option too. The entry age is 8years while the upper limit for investment is 65 years. You can either opt for a minimum term of 10 years or choose the 30-years investment period. Riders, as well as policy surrender facilities, are also available for investors.

Options in Fixed Income (For children within 0-7 years)

Plan Name Category Interest Rate (%) Duration Fund Value in 5 years for Rs. 10000/- invested monthly 
POST OFFICE RECURRING DEPOSIT SCHEME Small Savings 6.90 5 years 710234 /-

Options in Mutual Funds (For children within 8-15 years)

Plan Name Category 1 year returns (%) 3 year returns (%) 5 year returns (%) Fund Value in 5 years for Rs. 10000/- invested monthly 
SBI EQUITY HYBRID FUND – GROWTH Equity 11.30 11.94 19.35 957340 /-
ICICI PRUDENTIAL EQUITY & DEBT FUND – GROWTH Equity 8.19 13.89 19.73 965980 /-
ADITYA BIRLA SUN LIFE EQUITY HYBRID 95 FUND – GROWTH Equity 6.55 12.70 19.24 954852 /-
ICICI PRUDENTIAL BALANCED ADVANTAGE FUND – REGULAR – GROWTH Equity 7.78 10.54 15.72 878264 /-
AXIS TRIPLE ADVANTAGE FUND – GROWTH Equity 10.17 8.75 9.84 762663 /-

Options in life insurance (For children within 8-15 years)

BIRLA SUNLIFE WEALTH ASSURE PLAN
When it comes to investing in life insurance options for children between 8-15 years, the Birla Sunlife Wealth Assure Plan can be the perfect option. It’s an Unit Linked plan that offers a wide array of investment opportunities, guaranteed additions, along with a minimum premium if 1 lac per annum.

Options in Fixed Income (For children within 8-15 years)

Plan Name Category Interest Rate (%) Duration Fund Value in 5 years for Rs. 10000/- invested monthly 
POST OFFICE RECURRING DEPOSIT SCHEME Small Savings 6.90 5 years 710234 /-

Options in Mutual Funds (For children of 15 years and above)

Plan Name Category 1 year returns (%) 3 year returns (%) 5 year returns (%) Fund Value in 5 years for Rs. 10000/- invested monthly 
ADITYA BIRLA SUN LIFE MEDIUM TERM PLAN – REGULAR – GROWTH Debt 5.08 8.29 9.61 758436 /-
ADITYA BIRLA SUN LIFE CORPORATE BOND FUND – REGULAR – GROWTH Debt 4.91 7.82 8.88 745165 /-
ADITYA BIRLA SUN LIFE SHORT TERM OPPORTUNITIES FUND – REGULAR – GROWTH Debt 4.25 7.59 8.87 744978 /-
UTI SHORT TERM INCOME FUND – DISCONTINUED – REGULAR PLAN – GROWTH Debt 4.27 7.26 8.43 737078 /-
BNP PARIBAS SHORT TERM FUND – REGULAR – GROWTH Debt 5.28 7.43 8.24 733696 /-

Conclusion

It is clear that there are many banks and financial institutions that have come up with attractive child investment plans. You need to be judicious about what plans you want to opt for based on multiple criteria like time horizon and age of a child. With this post, your research work will be strengthened so that you can easily choose the right plan to help your child achieve his or her dreams.

Do connect with us at Orowealth if you need expert assistance in choosing the right investment for the child based on your own income and wealth creation goals.

Vijay Kuppa
Vijay Kuppa
vijay@orowealth.com

Vijay co-founded ORO Wealth after 6 years of investment experience in equity and fixed-income markets and was managing a $1.5 bn investment portfolio focused on Indian markets in his previous role at L&T’s Treasury. He has an MBA from IIM Ahmedabad and a degree in Chemical Engineering from IIT Bombay.

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