The biggest concern or confusion for many of the parents is to identify the best child saving and investment plan in India. There are Endowment Plans, ULIPs, or Mutual Funds, which claim they are best. However, which is really best?
I am writing this post with intention of avoiding the biggest misconception with respect to child saving and investment. I am going to share you how you can design the Best child saving and investment plan in India by following the below steps.
This plan will not recommend you any Endowment Plans, ULIPs or Mutual Funds meant and SOLD as BEST CHILD PLAN products. However, makes you understand the risk involved in such products and how can you design your own plan and start investing.
Steps in identifying Best child saving and investment plan in India
Here are the steps, which makes you easy choosing the Best child saving and investment plan in India.
Step 1:-Stay away from Endowment, ULIPs, or Mutual Funds, which claim to be designed for KIDS FUTURE
First thing, you have to make sure is to completely NEGLECT these instruments, which claim to be meant for CHILD EDUCATION AND MARRIAGE.
The only features which make you attract with such plans are PREMIUM WAIVER BENEFITS in case of the death of the parent. However, it does not mean that one must buy such products because of this. You can compensate such feature by buying the simple term life insurance.
My reasons for avoiding such products are-Liquidity Issue, no past track record of such products, may not be able to beat the future cost of your kids, and complication in design.
Step 2:-BUY Life Insurance
In my first point, I guided you to stay away from an endowment, ULIPs, or Mutual Funds, which are meant for kids. However, it does not mean that you must ignore life insurance.
Hence, you must have adequate life insurance coverage. How much you need depends on identifying the below points.
# Sum up all your future Household expenses and child’s yearly school and tuition fee from today to till child reach the age of college.
# Current value of child’s Graduation and Post Graduation expenses.
Once, you sum up these, and then the required life insurance coverage is what you have to buy. Do remember that this Life Insurance coverage calculation is only for your child education planning. However, if you have any other financial goals, such goals, and liabilities must also be included while arriving at final life insurance requirement.
Also, the above said points to arrive at is a simple step. If you need specific requirement of how much you need, then take the help of a fee-only planner or do it yourself.
Refer:-Top 5 Best Online Term Insurance Plans in India in 2017
Step 3:-The right time to start for investing is NOW!!
Many may be in a dilemma of when to start investing for your child saving and investment. Is it immediately after the birth of the kid or when? In my view, the BEST TIME TO INVEST IS NOW. Because those who thought of investing now after a gap of few years are in hurry to accumulate. But thinking of when makes many to postpone also.
Hence, whether your kid born today or he/she is 5 yrs old, the right to start investing is NOW.
Step 4:-Setting goals of child’s education and marriage
Once the basic actions of avoiding the junk products, buying proper life insurance and decided the mindset of start investing now, the next step is to identify the quantum and time horizon of the goal.
You can discuss the same with the parents who have kids and they are doing the graduation and post graduation currently. Based on that, you must consider the CURRENT cost of such expenses.
Once this is done, then identify the time horizon. Means how many years left for your child’s graduation and post graduation. This is the time horizon within which you have to accumulate.
Regarding the marriage goal, it depends on society to society. Hence, instead of relying on some other sources, it is always best to identify the marriage cost in our society in today’s term. Also, when you are planning to marry your child.
Remember one thing that you can’t postpone your child graduation and post graduation. Hence, they are specific in nature. However, same may not be true with marriage. It may be preponed or postponed also.
Step 5:-Inflation
Ideally, many consider the inflation rate of 6% to 7%. However, if you look at the way education cost going up, I would rather consider the inflation rate of around 8% to 10%.
You notice one thing, for higher education the fees may not be increased on yearly basis. But suddenly they increase it after 3-4 years with an exorbitant rate. Hence, it is prudent to consider the higher inflation rate than the typical 5% or 6%.
Step 6:-Return on investment
Once you know the time horizon, the current cost of graduation or post graduation and the inflation rate, the next step is to identify the asset class and the approximate return expectation.
I would suggest that you must ideally keep around 7% returns for debt and 10% to 12% from equity. However, if your products generated more than these expectations, then you may reach the goals earlier and feel that this like BONUS!
Hence, set an idealistic return on investment expectation.
Step 7:-Products to choose
Now you are fully aware of the time horizon of the goal, the current cost of the goal, inflation and return expectation from each asset class. The next step is to select an appropriate product for investing.
# Debt-In case of debt, I would suggest PPF (if time horizon matching the maturity period of the product), Ultra Short Term Debt Funds or Short Term Gilt Funds (Top and Best Debt Mutual Funds in India for 2017).
# Equity-You have to choose one Large Cap, one Mid-cap, and one Small-cap Mutual Funds. Three funds enough to manage your equity portfolio (Refer Top 10 Best SIP Mutual Funds to invest in India in 2017)..
However, if you do not want to separate equity and debt in a different product, then chose equity-oriented balanced funds also. In such funds, the ratio between equity and debt usually is around 65:35. However, do remember to verify the quality of debt portfolio the fund holding and the market cap of an equity portfolio.
Because ALL EQUITY ORIENTED BALANCED FUNDS ARE NOT SAME.
Step 8:-Asset Allocation
The next step is identifying the asset allocation between debt and equity. There is no such standard rule. However, I am recommending the below rule to follow.
If the goal is below 5 years-Do not touch equity product. Use the debt products of your choice like FDs, RDs or Debt Funds.
If the goal is 5 years to 10 years-Allocate debt:equity in the ratio of 40:60.
If the goal is more than 10 years-Allocate debt:equity in the ratio of 30:70.
Also, keep in mind that once the goal is about to near, you have to reduce your equity portfolio and increase the debt portfolio while doing the review.
Step 9:-Review
Once the investment is started based on the above procedure, the next step is to SIT SILENTLY FOR 2-3 years. After that, start reviewing your portfolio once in a year.
Bring back the asset allocation to the standard of which I shared above. Even though you may not feel the importance of this activity, but it will definitely give you an edge during the equity market downfall.
Hence, investing and forgetting for long will not work. You have to review and re-balance it.
Step 10:-Child’s Marriage Planning
First, understand the requirement of this goal. Whether is it necessary or what? In addition, if you have sufficient surplus after meeting your child’s graduation and your retirement goal, then think about this goal. If you have a surplus to invest after accommodating to goals, which are very sure to come, then think about planning for child’s marriage. Otherwise, simply SKIP!
Why I am harsh and suggesting you SKIP and that too with such emotional financial goal of parents? Because the major responsibility of a parent is to provide quality and good education to their children. Marriage goal may be handled by them. In worst case scenario, you can arrange it with as simple as at the cost of within Rs.10,000 (with register marriage).
However, same can’t be possible in case of education. Hence, if you have a surplus, then plan for it. Otherwise, simply skip this goal.
Gold for Child Marriage:-
Many of us have a social obligation and dream of accumulating gold for our kids marriage. However, do remember that Gold is an asset class, which gives you the return of debt product (like Bank FDs) but comes with volatility like a stock market.
Hence, if you aim is to accumulate the gold for future usage, never invest in physical goal. Instead, consider this also as a financial goal, and start investing in equity and debt based on time horizon.
Conclusion: -In my view, the above-mentioned steps will surely help you in identifying “Best child saving and investment plan in India”. No product is best or worst. However, we have to use it wisely to match our goal. Also, there is no single product which we may claim as UNIVERSAL BEST.
Hence, under the process, plan, risk, and requirement. Based on that choosing the product is just an end game.
Hello Mr. Bashu, I follow you and appreciate and admire you and expecting a suggestion to invest for my niece. Let me share you the case and then you can suggest the best solution.
My Younger brother is not doing well on finances or I would say earning nothing totally dependent on my parent’s pension. he recently became the father of a girl, she is below 1 year. we are realizing the case of the brother and looking the future of the baby girl, we want to invest a lump sum amount of 50000 to 1 lacs now somewhere for the girl so that once she grew up then a good corpus could be created which can be used for her education or marriage purposes. so in summary time horizon is more than 15 years. but need to know investment option for my brother that he can manage. he is not techy or financially aware and wants the investment to be in brothers name of kids name.
please advice. the expectation is maximum corpus generation with initial lump sump amount with a long-term horizon and does not require much interference.
Dear Pankaj,
Thanks for your kind words. In my suggestion, the asset allocation between debt and equity should be 40:60. For debt, use Ultra Short Term Debt Fund. For equity, use one large cap and one mid cap. Regarding managing, you invest in his name by the nominee as his daughter and manage the portfolio by creating the login on your own rather than suggesting him to do the same.
is there an option available, where investment can be done by them only and managed by them only. do we have any good long-term investment option, wherein a minimum or no intervention required and corpus keep increasing with good returns?
Point is, do not want me to hold the amount either by managing the account, want everything with them only.
Also if go with your option, you mean funds or in equity individual stocks?
Dear Pankaj,
How can you train them to handle the money when they are not capable of doing this. Also, if you handle the login and all, it does not mean you have to track it on daily basis. Once in a year review enough. I suggested both Debt and Equity Funds.
As you said: “If the goal is more than 10 years-Allocate debt:equity in the ratio of 30:70”. Should I buy seperate plans for debt and equity? Or is there any plan to set percentage to put amount to debt and equity?
Dear Chinjith,
You have to buy it separately.
Dear Sir,
I have a Term plan of Rs 75 lac and an SIP 3,000 and PPF account yearly 10,000 .My one child is 5 year old and i want to plan his future education,kindly suggest that whether I should by Child education plan or MF or seperate PPF (in the name of my son).
Dear Nirmal,
I already answered your doubts in above post. Please refer once again and then raise your doubts in your next comment.
Dear Mr. Basavaraj
Myself Deepak Sharma. I am 30 and I have a 6 month old daughter. I am looking for a child education plane from the last couple of weeks but didn’t get an idea. Which one is the best? personally, I am more keen towards private ones like HDFC and ICICI. But still the same question. Which one is best for my children future. I want to secure her future. Please give some idea.
Dear Deepak,
Do you feel such CHILD PLANS actually suffice your requirement? Stay away from such plans and by referring above post you can decide which is best for you.
Dear Basvaraj,
I am Male, 28 yrs old. I have taken New Jeevan Anand endowment Policy at age of 24 for SA Rs.4000000 with the premium paying and policy term of 35 years. The yearly premium is Rs.112344. I have paid 5 years of premium by now. The vested bonus is Rs.608000. After going through your post, I feel like quitting it. Can you please suggest how to proceed.
Dear Rohit,
If you feel that much life insurance coverage is sufficient for your dependent to survive and if you feel 4% to 5% returns are BEST, then continue the policy. Otherwise, better to surrender.
If I surrender now then how much will I get back? Is it good to leave it and make it a paid-up policy?
Dear Rohit,
Regarding surrender values, check with concerned or nearest LIC Branch. Paid Up is good option when you are about to near the policy term.
HI SIR,
MY NAME IS PRASHANT FROM KANPUR I AM 32 YEARS OLD AND WANT TO INVEST FOR MY BABY WHOM AGE IS 2 YEARS
AND MY SAVING IS 2000 PER MONTH
PLEASE SUGGEST FOR MY BABY FUTURE
THANKS
Prashant-Refer my post properly. If you still have doubts, then we discuss the same.
Yes sir i have doubts which is best this is why i want better advice because this is about my children future
Prashant-BEST AMONG?
Hi Sir,
My son is 9 years old now but havenot started any separate savings for him. Can you pls suggest me best savings options available with decent returns.
Charujay-Refer above post for the same.
Hello Sir,
Nice Article. I am looking for a investment plan for my baby education and future plans. I have been googling since last six months but still i am not able to decide which one is better. My Current portfolio is below.
1. ELSS SIP MF : 1,20,000 annually
2. LIC : Rs. 30,000 Annually
Should i choose ULIP or pure investment plan for my baby ? Or you will suggest for Term + investment plan ? Really hard to decide .
Thanks
Sujit
Sujit-Buy Life Insurance for the sake of protecting your life risk only but not for investment purposes. Regarding choosing equity products, first you have to do asset allocation between debt and equity. Based on that you have to start investing.
Sir, I am now fan of yours. I am a finance guy, but the way you described the above plan step-wise is impressive. Thank you!!
Sham – Pleasure 🙂
Hi Basavaraj, i’m a 27 year old and have made the following investments:
LIC Jeevan Anand – 46,902 annually (2 payments done)
Reliance Nippon (Make In India) – 99,000 annually (2 payments done)
HDFC Life SL Youngstar Super Premium – 2,00,000/annum (already made 5 payments)
ICICI Prudential Dynamic Plan – Growth 16,000/month
Please suggest if i need a make a few changes in my investments and also if i need to continue HDFC Life or exit and repay my housing loan.
Regards,
Sree
Sree-If your intention is to INVEST, then why you purchased Life Insurance products?
Sir
I am 31 year old and till now i have not buy any type of policy.i can save 5k per month.please suggest me where i hve to invest.
Rakesh-Whether you want to invest or buy the policy?
i am confused in this, Please tell which will be more beneficial for, i will go with that
Rakesh-Hard to say BLINDLY.
Sir, all your post are really informative.
Can you please guide regarding latest lic’ kanyadan yojana? Can it be taken for baby boy?
Chiranjoy-Kanyadan Yojana is not from LIC, but the creation of LIC agents to garner the business at one shot. Stay away from such products (which even LIC itself few days back warned the public).
Hi,
I took ICICI Pru Guaranteed Savings Insurance Plan three years back in Feb 2015 with yearly premium of 1,01,545. I have paid three premiums till now. Should i pay 4 more premiums (because premium paying term is 7 years) or stop making payments now and take out the money at maturity (after 12 years)?
Your advice (i have taken for LIC policies as well) is really helping me make wise decisions – atleast now(after doing not so wise investments over the years). Anyways better late than never :-).
Thanks for all the guidance and help.
Vinita-Better to stop paying premium (if possible come out with surrender).
Thanks, I will find out if I can surrender.
Another query I have is on HDFC Sanchay . An HDFC agent, suggested me to take out money from earlier HDFC Investments and invest in this. I started this last year with premium of almost 2 lakhs. Is HDFC Sanchay a good investment ? If not, even then , because i have invested a huge amount, I will have to pay atleast 2 more premiums to get my money back, right ?
Vinita-HDFC Sanchay is one more trap. It is a typical traditional plan where you can get around 4% to 5% returns.
I realised that and thats why didn’t take for other kid.
BUT THEN , NOW THAT I AM TRAPPED , I will have to make 2 more payments right ? Else I will loose my 2 lakhs as well….
OR IS THERE ANY OTHER WAY ?
Vinitha-Yes, either ready to loose the paid amount or pay another two premiums and get back the PARTIAL amount of what you paid for 3 years.
Dear Sir,
Me and my wife both are working,
Below are the investment details of us-
PPF- 75000 annualy
ICICI prudential equity long term- 36000 Rs annualy
DSPBR tax saver – 36000 Rs annualy
Franklin India tax shield – 24000 Rs annualy
HDFC Midcap opp- 48000 Rs annualy
Axis LT equity- 12000 Rs annualy
Life insurance- 12500 Rs annualy
Term plan for 75 Lakh cover
Now i am looking for investement for my child education, ( long term- minimum 15 yrs) Should we go for any child plan or invest in other mode or should i modify above listed investement to fullfil my need.
Please suggest.
Thanks
Vaibhav-After referring above post, do you still asking for CHILD PLAN??
Please have a look on my investment details & suggest should i modify it?
Vaibhav-Please refer above post once again.
Hi Basavaraj, I recently purchase ULIP from HDFC for 10 years with 5 month lock-in. I have to pay 30,000 annually for 10 years. Sum assured is 3,00,000. It that fine or I should opt for another kinds of investment. I am new to investment and would like to make most judicious and informed decisions. I am seeking long term investments.
Rounak-What prompted you to buy this product?
Hi Basavaraj… thanks for your reply…. As I rightly mentioned, I am new to this field… never invested in my life. My relationship manager at HDFC bank suggested me to buy this so I bought.
Hi Basavraj ji,
My question , which policy is the best for child education, hereby to get good return after 18_years , I have purchased “SBI life smart scholar policy ”
Kindly suggest me ..Its good or not ..?
Vijay-Do you think Life Insurance is required for the child?
Hi Sir
I am Thomas, aged 37,working in a private firm. I need your kind advice on to whether to continue or not with the following schemes as the recent reviews are not so positive on both.
I had taken Aviva young scholar secure policy, for my son who is 6 years old.
Policy start date is February 2014,
Yearly payment of 1lakh,
I have completed paying last 4 years. As per policy details i need to pay till 2024.
1. Benefits as per policy agreement is 40000 rs every year from 2025 to 2029.
2. 2,50,000 rs at the end of 16th years.
3. 15,50,000 rs at the end of 19th year.
On unfortunate case insured amount of 20 lakh for family immediately. On surrendering they say to reduce almost 1 lakh from what i have paid till now.
Second plan was taken for my daughter 2 years old now.
Policy name: HDFC SL ProGrowth Plus
Policy term 25 years
Anual payment of 1 lakh
Fund type: Balanced fund 100%
Payment from 2016
Kindly advice us on continuing or not with these two policies.
Thank you
Thomas
Thomas-Never combine your investment with insurance. But sadly you did this and you have to wait for 5 years completion to come out of both.
Hi Basvaraj,
Thanks for all the information in one go!!!
1. ELSS or MF which one is best for retirement??
2. I have daughter of 2 yrs. old now, I have started to invest in PPF and SSY since 1 st year of her. Whether i need to continue with that or not.
3. Horizon is > 10yrs.
4. Can i continue the LIC Policy which i have now. 1. LIC JEEVAN ANAND / LIC JEEVAN SARAL / LIC JEEVAN SATHI / LIC NEW BIMA KIRAN
Pl guide.
Paras-1) ELSS is also a mutual fund.
2) If your goal is long term then why you want to discontinue NOW?
3) Then do the asset allocation first and start investing.
4) If you are OK with 5% to 6% returns, then you can continue.
Hi Basavaraj,
Thanks for the support and prompt response.
1. I know that both are MF. But, in details, I want to know, whether ELSS MF or Debt / Normal MF is better for retirement corpus?
As we know, ELSS has 3 year Lock-in period, whereas Normal MF has not. Also, I want to know about which one will be better in terms of return for a long term?
Again want to say thanks for the reply.
Paras-Refer my post “Top 10 Best SIP Mutual Funds to invest in India in 2018“, “Top 5 Best ELSS Tax Saving Mutual Funds 2018-2019” and “Top and Best Debt Mutual Funds to invest in 2018“.
Hi Basavaraj,
You suggested to invest first in the term insurance plan which you mentioned only for your child education planning. But the term insurance policies are PURE LIFE INSURANCE coverage right. For instance, if the policy holder survives the term, he wont see the maturity amount. how is this going to help in children’s education? Please clarify.
Thanks!
Sayeeganesh-I suggested Term Insurance as an INSURANCE but not as an investment product. For investment, you have to start investing in debt or equity based on the time horizon of your goal.
Hi Sir,
Really useful article!
I seek your advise on recently purchased SBI policies (before reading your article)
1. SBI Smart Elite Gold
2. SBI Smart Champ
I just paid first premium for both. Should I continue or surrender?
Apart from these I am also continuing Jeevan Anand policy from LIC for past 6 years. My 80C is already covered with PF & LIC premium. I am thinking of starting investment in mutual funds thru SIPs. Given these policies in hand how much portion of my salary should I invest in mutual funds?
Vivek-If the new policies are under free-look-in period, then rush to cancel. Otherwise, you be in trap to pay for another 3 years to be eligible for surrender. Identify your goals and then based on goals choose products.
sir i wannna invest money for childs edn and marriage .which fund ,insurance policy ,child plan i should go for
regards
Shail-Buy first term life insurance to the tune of 15-20 times of your yearly income. Then rest you have to invest in Mutual Funds based on the time horizon of the goals.
Sir, U article is very helpful.
My son is two years old, i am planning for his education.
likes to invest 50K per annum.
now where I have to invest ??.. term plan ??..
Is investment under 80 C will be beneficial or not ??..
Suresh-Term Plan is not an investment but a pure life insurance. You must buy that product. But along with that, you must also start investing wisely. Refer my above post.
Dear Basavaraj,
I am planning to invest for my child studies and he is 1 year old now. I need money after 10- 15 years so can i go for equity Mutual funds ?please suggest
Thanks
Mohan
Mohan-Refer “Top 10 Best SIP Mutual Funds to invest in India in 2017″.
Sir, is it still a good option to put money in PPF account. My priority is safe returns, no gamble with my money.
Nitin-You can put in PPF if time horizon of the goal is matching the PPF maturity. Otherwise how it can be useful to you?
I accidentally visited this site while searching information on selling house. I found all the articles very informative and well thought of.
Great job!!
Pankaj-Thanks a lot 🙂
sir i have taken jeevan saral policy, paid 5 year premium, which mature after 20 year thinking about study or marriage requirement of my 5 yr child , do you think that i am right or should i surrender or invest in other
BD-If you feel the 5% or 6% return is BEST for such 20 years investment, then go ahead. Otherwise, better to come out at the earliest.
Sir
please suggest
How to choose portfolio Debt : Equity 30:70.
Rajk-Refer my earlier post “Top 10 Best SIP Mutual Funds to invest in India in 2017” and “Top and Best Debt Mutual Funds in India for 2017“.
Hi Basu,
I have two goals 1.child education and 2.My retirement.
Should I choose one diversified portfolio(large,small,midcaps) for both goals or separate port folios.
Is it wise to invest in equity mutual funds for one year and take that after one year and invest in another good performing funds or stay investing by doing the SIP in the same mutual funds for one goal.
Please Suggest.
Deepak-You can do either of the way. But for simplicity, better to have one portfolio. Never touch any equity product if your time horizon is less than 5 years.
Should I go for SIP for the port folio ?…but what if it is performing bad in long run.
Kindly suggest.
Deepak-SIP is a way of investment. Hence, it does not guarantee you that provide a good return. Also, reviewing yearly once is a must for all your investment. If the portfolio or fund under performing continuously, then you have to think of what next.
Hi Basavaraj,
In asset allocation between Debt and Equity , you consider only time horizon. What about the risk appetite factor ?
Mudit-You are doing asset allocation to diversify and to subdue the risk factor.
Dear Sir,
Very Excellent article and all points are indeed very well covered. Very easy to understand.
regards
Rajesh-Pleasure sir.
Sir aap sundar vichar. Rakhe isa liye thanks
Yadav-Pleasure.
Hi Basu, Really Nice.
You have put the points very Well.
Mahesh-Thanks 🙂
Dear Basavaraj, is sukanya samruddhi scheme worth investing with long term vies in mind? Would it fall under debt category of step7?
Ranganath-As of now it seems attractive. However, it is a politically motivated product. Not sure the status of this product when the current Govt change. Hence, I personally avoided.