Financial concerns for the kids have too
become core concerns of parents. And there is a surfeit of
investment opportunities for your kid. And it is not surprising
then that a number of different financial intermediaries offer
schemes for children. Various schemes of LIC and specially
schemes for children from various private and public sector
mutual funds are available.
However, it is necessary to identify the need
of the investor. With these needs in mind, various schemes have
been formulated. Lets take the case of mutual funds. Should one,
keeping in mind that we are saving for the child’s future
needs, put money into an ordinary open end income scheme or a
special scheme for children. A look at the various schemes would
reveal that most have lock in periods, some as long as 18 years.
Will it not be wiser to invest money into an ordinary income
scheme, which provides ready liquidity, and similar returns.
This liquidity means that you can churn your funds in various
schemes depending on the returns. In a special scheme, thanks to
the lock in period, the investor may just end up watching,
helplessly, the suffering NAV in case of poor performance of the
scheme. The investor will have to ensure that he does not use
the liquidity to lose sight of the objective saving for his
children and buy a new car for himself instead.
The other crucial question is then the choice
between LIC schemes and mutual funds schemes. On a return basis,
these will lag behind mutual funds. The advantage of these
schemes lies in the insurance cover that these schemes provide.
In a policy like Jeevan Sukanya for instance, the girl child not
only receives the sum assured on attaining a certain age but
also gets the assured amount again in the death of her husband
who is included in the insurance cover once she gets married
thus providing her financial security.
The other advantage is that of a low initial
outlay. With mutual funds requiring one time investment, which
then grows over a period of time, the initial outlay needs to be
large, though one can modify it and buy minimum units every year
in a phased manner, which can then impact final returns. In the
case of Rajlakshmi Unit Plan for instance a one time investment
grows to a particular amount at the end of a certain number of
years. Thus this needs a good amount initially.
The third and important for some investors,
is that the final amount at the end of the investment period is
assured in the case of LIC schemes. In the case of mutual funds
it will depend upon the performance of the particular scheme.
There are arrsured return schemes in Mutual funds too- RUP II
and CGGF- both from UTI.
With this in mind it seems that a mix of
schemes from mutual funds and LIC would be right approach.
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