5 Important Factors While Investing in Child Savings Plan

In the time and age that we live in, money is an extremely important means to an end. As parents, you realise just how much money you need when you start preparing to have a child.  Today, there are far more ways to save and prepare for your child’s financial future than there were even a few decades ago.

We are of course, talking about a child savings plan. The following are the most popular types of child plans that aim to protect your child financially:

We all know what the above financial products offer. Thus, let’s skip to the part where we try to figure out what factors should one consider while investing in any of these child savings plans. Listed here are those factors:

  1. Risk appetite

Introspect and gauge if you are comfortable with the idea of ‘high-risk-high-rewards’ or prefer the path of caution. Depending on your risk appetite, decide the investment vehicle you want for your child’s plans. For example, if you prefer low-risk investments, then PPFs and fixed deposits are a good idea. Some mutual funds and ULIPs range from being low-risk to high-risk.

  1. Waivers available

As a parent, one needs to be pragmatic as much as emotional. One must consider the possibility of an untimely death. If you wish to prepare for that possibility, then consider a child savings plan such as a life insurance policy where the premiums are waived off in case of the parent’s death. This way, the child still gets the assured sum and doesn’t have to go through the burden of having to pay premiums.

  1. Rate of interest

This factor is intertwined with the risk appetite. Often, low-risk investment options offer lower rates of interest or returns. Take the rate of inflation into consideration when opting for something like a fixed deposit plan. The rate of interest may not be up to your liking, but you will need to balance it against your risk appetite.

  1. Timing of the investment

Starting to build your investment as early as possible is a wise idea. This way, you have a lot of time to save and invest. Even if you start later, when your child is a little older, don’t lose hope. You will simply have to pay bigger SIPs (in case of mutual funds) to reach the corpus amount you want for your kid.

  1. Type of investment

A ULIP is very different from a PPF. While a ULIP and mutual fund may have some features and benefits in common, they are still different products. Thus, make sure you do your research into their features, pros, cons and general popularity before you make a decision.

Do not hesitate to reach out to a financial advisor or that financially-savvy friend for advice and guidance. 

Happy parenting!