Making investments and saving to help a child's educational needs is one of the parents' most important financial goals.
Every parent tries to figure out the most effective way to ensure a prosperous future for their child that adds an emotional value to the objectives. The planning for this goal should be considered carefully, and you must choose the best investment choice.
Many child Plans are offered by various insurance companies. They typically blend the investment and insurance requirements. In this case, it is possible to build up the necessary corpus from the accumulation of premiums and investment earnings.
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Additionally, if one or more parents die, the assured sum will be distributed directly to the beneficiary. It aims to remove the uncertainty and provide financial security for the child.
Always compare Apple to Apple. You can't compare insurance to investment. Both are best on their places. Some Mutual Fund provide group insurance benefit for SIP investment.
Below are some main difference between child Insurance Plan vs Mutual Fund Investment:
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Since they are an insurance plan that covers children, child plans provide the default insurance coverage for parents.
In contrast, mutual funds are mostly an investment product and do not offer insurance coverage in default. Some mutual fund provide group insurance against your SIP investment. Insurance cover is free of cost, if claim arise investor received claim amount + Mutual Fund Valuation.
To safeguard against the future, you can purchase a term insurance policy and invest a small percentage of savings in mutual funds.
Flexibility in Portfolio:
Child Insurance plans do not offer the flexibility to invest in a portfolio besides providing the three fundamental choices of a moderate, medium, aggressive, or conservative portfolio.
However, investors can select from a variety of mutual fund plans to reach their financial objectives.
Alignment of Risk Profile
While investors are limited to generally aligning their risk profile within the Insurance Child Plan, mutual funds permit flexibility to ensure that the portfolio is aligned to their risk profiles.
This is because investors can choose to use different mutual fund options to create a diverse portfolio.
The child plans are generally more conservative in their investment strategies as the main objective for the policyholder is to ensure that they are covered. The returns from investments will be a secondary benefit.
However, mutual fund plans can be an excellent method to reach your investment objectives since professionals manage the funds for investors.
Premium waiver benefit:
If the policyholder dies during the policy's validity period, the policy doesn't cease to exist under a child's insurance plan.
The insurance company will waive the cost of premiums for the rest. At the time of maturity, the child gets the whole amount assured. Thus, the child will not suffer the consequences of the parents' sudden death.
Normal Mutual Fund scheme nothing happens. But you opted for free insurance cover option provided by some mutual fund house.
Mutual Fund paid claim immediate to nominee's bank account, and your mutual fund investment also with you. you can pay remaining investment from your claim amount.
Child Insurance Plan Vs Child Fund Who is Better Investment Option?
Both child plans and child funds have their fair portion of benefits and drawbacks.
Selecting between the two is dependent on the individual's goals and financial time frame.
For example, if you require funds in the next 8 or 9 years, a child's fund is better since child insurance plans have longer maturity periods.
Both scheme offer 80C benefit. In addition, child insurance plans offer additional benefits at maturity, i.e., tax-free under Section 10(10D).
Child Fund provide long term tax benefit (yearly 1 lakh LTCG). If you manage properly then Child fund also provide maturity benefit.
So, it is advisable to talk to a financial planner to aid you in planning your goals in financial planning and making an informed decision.