Why you should not compare insurance with mutual funds when planning for your child?

Why you should not compare insurance with mutual funds when planning for your child?

Authored By: Ajit Panicker

Everyone likes to see their hard earned money grow quickly. But there are no quick gains. An investment has to be long term in order to be really beneficial. As you make up your mind to invest, make sure you are ready to keep patience. Besides, risk factor is always there to escort your investment. So, you should be absolutely clear in your mind, what you want. Whether it’s life insurance Policy, National Savings Certificate or Mutual funds, all the investment plans have their merits and demerits that you need to consider before you proceed. Unit Linked Insurance Plans are also gaining popularity these days for their investor-friendly profile.

When planning, the objective should be clear. If the objective is that of child's future planning, ons should consider the following things before zeroing on a particular product?

1. Is the product allowing you a regular flow of investment or is it asking for a lumpsum investment?

This can both be provided by a mutual fund and a child insurance plan. In case of mutual fund a lumpsum investment one time or on SIP mode , and in case of insurance plan it can be a single premium plan or a regular premium paying plan.

2.Is the product giving you decent returns which is beating the inflation? Mutual funds or a child insurance plan both over a period of more than 10 years would provide a return around10-12%. But in mutual funds, till this financial year only tax saving mutual funds allow tax rebate, and all other mutual funds would attract tax, but in case of all life insurance plans under section 80C the principal amount and the returns or maturity amount under sec10(10)d are tax free.

3.Is the product liquid  or it allows you to adhere to a discipline of regular investing and does not give you an easy chance to exit. If the planning is for the child's future, it is always better to get into a plan where you have less chances to exit, so that even emergencies do not force you to exit. And the child's plan continues.

4.Is the product giving a rsk cover in case of any risk happenning to the person who has bought the product for the child. This can only happen in an insurance plan.

So the point in consideration is that all products available in the market with due respect to the risk, return and liquidity involved them, should be considered by keeping the financial planning objective in mind.

All product have their own individual importance and work accordingly.

Consult your Financial Planner