I am a 32-year-old software engineer working for a multinational company in the NCR. I am the sole breadwinner for my family of four and have been paying off a home loan for the past five years. Recently, I was blessed with a baby girl. I’m seeking expert advice on whether I should invest in a child investment plan immediately or wait for a few years. As a parent, my goal is to provide the best education and a bright future for my daughter. Can you guide me on how to choose the best investment plan among the different options available for a girl child?

Akash

Your foresight to invest at an early stage for your daughter’s financial future is commendable. Considering your situation, a balanced approach seems to be the best strategy.

It’s often said that the more you delay, the more you pay. So, I’d advise not to wait too much as child plans allow you to invest for children as young as 30 days. Now, the first step is to have a financial strategy to calculate and fund your child’s long-term investment goals — such as higher education or wedding.

The education inflation rate continues to be insatiable at 9-10 per cent, which means the college fee of ₹20 lakh today will be close to ₹1.5 crore after 20 years. Since you wouldn’t want to compromise on the quality of education, you should balance your portfolio with returns and security as soon as possible.

The formula for wealth creation works on securing existing capital and generating high returns on investment. For this, you can look at guaranteed plans that are offering competitive returns as high as 7.5 per cent without the risk of market volatility. The maturity amount is fixed and completely tax-free for up to ₹5 lakh of annual premium payment, which adds to your corpus.

Next, if you know your way around market conditions, you may also include ULIPs or unit-linked investment plans in your portfolio. These plans have been historically known to generate 14-15 per cent returns in Indian markets under favourable conditions and will help you beat the education inflation rate. So, if you have an appetite for risk, you will get rewarded too with these plans depending on the market. If you prefer a rather balanced approach to your investments, then you can also opt for child capital guarantee solutions that offer the best of both worlds. On one hand, your initial capital is 100 per cent secured, on the other hand, you stand to gain from the upside of the market and enjoy great returns on your investments.

Apart from wealth creation, as a parent, your prime concern is to provide financial stability to your children, irrespective of the circumstances. These plans come with a life cover which is 10 times the annual premium so that provides a legacy and financial security even in your absence. The best part about all these plans is that they come with the waiver of premium option. This ensures that even after the policyholder’s unfortunate demise, the future premiums are waived and borne by the insurance company. The policy continues as usual and the child is eligible to get the fund value upon maturity.

Given that you also have a loan to pay off, this in-built feature is of great use to you. Owing to the life insurance element, the plans also offer tax benefits under Section 80C up to ₹1.5 lakh. While there are several investment options out there, if you’re looking to simplify your financial planning, these plans tick all the boxes — future security, great returns and tax benefits all rolled into one. You can also consult with a financial advisor to divide your funds strategically.

The writer is Joint Group CEO, PB Fintech

Send your queries to insurancequeries@thehindu.co.in

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