Get an Insight on Child Mutual Funds
Last Updated : June 4, 2016, 6:45 a.m.
• If you are a parent, you will surely agree on the fact that when it comes to doing the savings for children’s future, it has become one of the biggest worries for any parent today. Yes, with the tremendous rise in education cost, many parents are worried and thinking whether they would be able to save enough or not.
• However, according to the report of the latest survey, the education cost has witness a drastic change as it has increased by 150 percent as compared to previous decade. Moreover, as per the latest survey, it would not be wrong to say that 70 percent parents spend nearly 30-40 percent of their income to provide the best education to their children.
• But, what about those parents who can’t afford that? Well, there are many parents who are in a search of such products that will help them in saving the enough funds to fulfill the future needs of their children. This is where the mutual funds are considered as an ideal long-term instruments to cater this need.
• However, there are no such schemes availing in the market that target this specific segment. However, few banks such as HDFC and ICICI have plans for children and they have been there for over a decade. Since their launch in 2001,these plans are getting very popular among many, and large numbers of parents are availing it.
• One thing that needs to be mentioned here is the fact that in comparison with insurance companies, they have the maximum number of products in this category that are usually unit-linked insurance plans, and are also being pushed very aggressively.
• There is no denying on the fact that mutual funds are getting more aggressive when it comes to child’s plan. More to the point, other banks such as Axis along with L&T have also started offering the top mutual funds plans for children, and not only one, but many parents through these plans are saving money for the future education expenses of their child.
• However, if experts are to be believed, for such plans the stocks will not be large, mid or small cap, in fact they are looking the long-term orientation in the portfolio. Experts say that parents should invest for at least 10 to 15 years in such schemes. Moreover, these schemes are debt oriented just like existing schemes of HDFC and ICICI banks.
• As far as taxation is concerned, it will also be like the debt funds, wherein the returns will be added to your income, in case you exit before three years. And, this thing is taxed as per the income-tax bracket. However, post three years, the taxation will be 20 percent with the inflation benefits of the indexation.
• While on the other hand, if you go for a child insurance plan, there is no denying on the fact that the product will be an insurance-cum investment plan, commonly known as unit-linked insurance plans.
• Thus, you have the inbuilt insurance component as it assumes that after the demise of the parent, the child is left with enough funds so that he can complete his further education. This is the reason that the part of the premium goes for paying the life cover. Whereas, the remaining part is invested in equities as well as debt.
• Not only this, in fact in this, the costs are higher as there is premium allocation and other charges. In addition to, these plans get benefits under the section 80C while an investment is a major draw in the season of the tax.
• When it comes to withdrawal, the tax benefit depends on the premium-to-sum assured ratio. However, experts say that ideally one should create a portfolio that has a proper mix of debt and equity for their child’s education. Moreover, if one is unable to do that, it would not be wrong to say that a child mutual fund being coupled with a high-term insurance plan should be perfect for the future of the child.