Children Education Planning

A popular investment option is a Systematic Investment Plan in mutual funds. A small sum is set aside each month which appreciates steadily and over time gives returns sufficient to cover the college expenses of the child. It is very important to shift the corpus to a debt instrument, 3 -5 years before the intended goal or target date of the child's college education.

Public Provident Fund opened in the name of the person as well as the child is a commonly followed practice. This investment is risk-free and enjoys tax benefits. Financial Planning for Children's Education using a Public Provident Fund needs to be started when the child is still young.

Children Insurance plans are unique and one of a kind. These may be Endowment plans or Unit Linked Insurance Plans (ULIPS). Just like other Insurance Plans, premiums are paid on these plans too. Maturity benefits are paid on the maturity of such plans.

Under Endowment Plans, investment is made in debt instruments and the returns are limited. The bonus accrued is given to the investor. This is a twin benefits plan giving: Insurance + Savings

The parents of the child are the proposer of the Child Endowment Plan. The proposer is also the life assured in the policy. The policy is taken on the life of the proposer in a Child Endowment plan. The proposer has to pay the premiums towards the Child Endowment policy. Higher the premium, higher is the sum assured you get in a Child Endowment plan.

If the proposer/parent dies, then the children get the money for their education (sum assured is paid). But, the plan doesn’t end here. The insurer then funds the policy by paying the remaining premiums. The child endowment policy matures when your child is 18-21 years of age. When the Child Endowment plan matures, the insured gets a second guaranteed lump sum amount which can be used for children's education. This plan is great because of the twin-payouts.

Under a Unit Linked Insurance Plan (ULIP), 100% of the amount can be invested either in debt or equity depending on the risk appetite of the investor. Unit Linked Insurance Plans (ULIP) gives higher returns than Endowment plans. An investor can opt for either of them and even switch between them. ULIPS have a compulsory 5 year lock-in.