Investing for kids: Which are the best plans for a child's career?Investing for kids. I wanted to invest money on some funds for my son’s (10 months old) career. Can you suggest me what are the plans suited for me? I am ready to invest 1lakh rupees. Congratulations! not many parents start thinking so early about investing for their kids. So you are on the right path. What you are looking to ensure probably is that you have some bulk funds available every year from the time your son turns 16, till the time he attains 23-24 years of age. To take care of his college and postgraduate education. Most insurance companies claim to cater to investing for kids requirments like yours by way of Children's Plans (which are nothing but ULIP Plans) where these companies pay a percentage of the sum assured+Bonus at identified intervals. Parents feel secure also because of the Insurance cover component. However these plans are not wise investments, because of the high premiums associated. As much as 30% of the premiums go in various costs incl. the agents commission and only 70% of your money gets invested in the Units linked to Insurance Plans, or ULIPs. The huge comissions are not just for the first year but continue for several years before they come down to levels comparable with that charged by Mutual Funds - which seems paltry in comparison - a mere 2.5%. Now if you understand the power of compounding, this itself is a huge reason for you to forget about considering ULIPs. The best way, in my opinion, to invest for such investing for kids requirements is to invest your money for the long term in some of the best 5-star rated Mutual Funds. You can spread the proposed 1 lakh between HDFC Prudence (40%) for safety, SBI Magnum Contra (20%) for steady returns and Reliance Growth (40%) for high growth. These are perhaps the best funds with excellent long term track records having withstood both bear market lows and prospered from bull market highs. Check them out, and the latest top-rated funds at ValueResearchOnline. Your 1 lakh investment, if you leave it untouched for the next 15 years, can easily grow compounded annually to a princely sum of Rs. 8 lakhs (15% compounding) to over Rs. 15 lakhs (20% compounding). So your money can be made to work much better by investing in these 5-star rated relatively safe funds as mentioned above. Returns, which the ULIP plans can never match because of higher costs. And none of the ULIP Plans yet have any track record to match the best of the 5-star rated Mutual Funds. Consider this article to compare Mutual Funds & ULIPs as investment vehicles. The other thing to consider is will this be enough for your child's education 15 years from now. If a professional college education costs Rs.5 lakhs today, with 7% inflation rate, in 15 years that itself would cost almost 14 lakhs! All the more reason that you need your money to work harder for your child in the best possible schemes. My suggestion would be to invest another 1 lakh for your child as soon as you can, to reap similar benefits. Now, If you are thinking of an insurance cover additionally, go for a Term Assurance Plan additionally at a fraction of the cost of the premiums in a child plan. Consider also this excellent article on why Investment & Insurance should never be mixed. Good Luck!
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