Becoming a parent is like changing your entire world. It is considered to be among the most beautiful yet a difficult time that many people experience. Your responsibilities suddenly double up. Therefore, when embarking on this new adventure, preparation is a certainty and financial preparation starts with wise investments.
As you get serious about listing your financial goals, your children’s future comes top of your mind. When you want to set aside money every month to meet the education, marriage or other expenses of your child, you will encounter two options – ULIPs and mutual funds. It is quite natural to be confused as to which one would benefit you the most. Therefore, we can give a lowdown on what may work for you:
When you plan your children’s future you do take into account the unpleasant scenario of you not being around. Having an investment plan that stays intact even in your absence is a sensible approach, more so, if you are a sole earning member in the family. The advantage of new-age child ULIP plans is its waiver of premium option. The option ensures that even after the death of the policyholder, the child plan remains in force for the remaining part of the policy term. The policy premium is paid by the insurer and at the end of the policy term, the maturity amount is paid to the child. However, new-age ULIPs are of low-cost and comparable to mutual funds. They don’t have premium allocation or policy administration charges. You do pay the fund management cost, but it is capped at 1.35 per cent. Online ULIPs also let you have unlimited ‘switch’ options. Besides, some insurers return the mortality charges along with the maturity amount if you survive the policy period.
The most important step in ULIPs is selecting suitable fund options. If you have a long-term view, you can select equity funds and reduce equity exposure as you get closer to your child’s education goal. If you are not savvy enough to take such calls on your own, you can leave that to the fund manager.
Saving for your child’s education means you most probably have time until your child turns 18. So, considering your investment objective, your mutual fund can have one of the three features – a long time horizon, a high rate target and no need for immediate cash flows. There’s a wide variety of mutual funds and your pick should be based on how much corpus you will need, your appetite for risk, and your need for returns, in addition to your term.
You may choose between debt funds, equity funds and balanced funds. While debt funds invest in fixed- income products like bonds, corporate securities and government treasuries, equity funds invest in stocks, so the expected returns are higher but with more risk. Debt funds are safer but yield better returns at a slower rate, compared to equity. The third kind, balanced funds divide your money between debt and equities. The fund manager aims to maximize your returns, while minimizing the risks involved.
What should you choose?
Unit-linked insurance plans and mutual funds have different tax implications and evaluating the tax implications of your investments before making a decision is important. You can opt to invest a lump sum or a fixed amount through a Systematic Investment Plan. As a parent who is responsible for your child’s secure future, it is vital that you adopt a well-planned investment strategy by choosing between short, medium, and long-term funds as and when required.