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Child Savings Plan

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Child Savings Plan
Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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What are Child Savings Plans?

Child Savings Plans are plans that help build a corpus to fund your child’s education, marriage, and other expenses related to the child. These plans offer the dual benefit of savings and life insurance. In the event of the death of the parent, the child will receive a lump sum amount, which can be utilised to pursue higher education. 

There are an array of child savings plans with different features and benefits. You can choose the best saving plan for child with a 10 to 20-year term and with a host of benefits. While choosing a child savings plan, it is recommended to choose a long-term plan and play the premium regularly to keep the policy active. 

Why is it Important to Have a Children's Savings Plan?

Shaping your children’s future depends on the quality of education they get and the financial backing they have if they decide to establish a business. With the rising costs due to inflation, it is important to have robust financial planning now to secure the future of your child. Children savings plan helps provide the best education and financial backing for any venture that your children wish to start. A well-designed saving schemes also provides a robust financial safety net for your child's future, providing financial security and builds a strong foundation for your children and will bolster their confidence.

How Do Child Savings Plans Work?

A child savings plan provides dual benefits. It helps save funds for your children’s education children’s marriage, and other major expenses. It is also a financial safety net for your children in case of eventualities. This is how the children savings plan works:

If you purchase a child savings plan and pay the premium regularly throughout the policy term, you can use the maturity amount for your child’s higher education. In case of any eventuality during the policy term, the death benefit ensures that your child can pursue his/her higher education and fulfil his/her dreams. 

Key Benefits of Child Savings Plans

The main objective of buying a children savings plan is to fund their future expenses like higher education, marriage, and establishing a start-up. It also provides financial security to your children in your absence. The key benefits of a child savings plan are:

1

It provides the benefit of savings as well as life insurance. It secures your child’s future and provides financial security to him/her in your absence. 

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2

This child saving scheme comes in handy in emergencies. You can make part withdrawals whenever you need funds.

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3

In case of an eventuality, your children get a lump sum payment by way of a death claim. Also, the plan continues to be live, and the future premium payments are taken care of by the insurance companies. At the end of the policy term, they receive a payout that will ensure they fulfil their dreams at any cost.

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4

The premiums paid for a child savings plan are eligible for deductions up to Rs. 1.50 lakhs under Section 80C of the Income Tax Act, 19613. The payout received also has tax benefits under Section 10(10D) 3.

...Read More

Child Investment Options 

Some of the Best Child Investment Plan Options

Securing your child's future requires a well-defined financial plan. Here, we explore some of the most reliable investment options to consider:

  • Systematic Investment Plans (SIPs): 

A Systematic Investment Plan (SIP) provides a structured approach for building wealth with mutual funds. Through SIPs, you can consistently invest a predetermined amount at regular intervals into a chosen mutual fund scheme. This flexibility allows you to tailor your investments to your risk tolerance and financial goals. 

Whether you seek capital appreciation through equity funds, income generation via debt funds, or a balanced approach with hybrid funds, SIPs empower you to gradually accumulate savings for your child's future needs.

  • Child ULIPs: 

Child ULIPs combine insurance coverage with a plan to build financial security for your child's future. They function by allocating a portion of your premium towards a life insurance cover for your child while the remaining amount is invested in market-linked funds. This allows for the potential for growth alongside the provision of a safety net in case of unforeseen circumstances. However, it's crucial to understand the associated fees and risks of investing in a Child ULIP.

CHILD PLANS

  • Sukanya Samriddhi Yojana (SSY):

For parents seeking a safe and secure investment option specifically for their girl child, the Sukanya Samriddhi Yojana stands out. This government-backed scheme boasts attractive interest rates and offers a maturity period aligned with a girl's coming of age (21 years). Contributions can be made until the child turns 14, allowing for gradual wealth accumulation. 

The Sukanya Samriddhi Yojana presents a compelling proposition for those prioritising risk-averse planning for their daughter's future.

  • Debt Funds: 

Debt mutual funds offer a relatively low-risk approach to building a corpus for your child's future needs. These invest in fixed-income securities like government bonds and corporate debentures, providing stable and predictable returns. Debt funds are suitable for investors seeking capital preservation and a steady stream of income.

  • Recurring Deposits (RDs): 

Recurring Deposits (RDs) are a popular option, especially for those with a regular income flow. They allow you to invest a fixed amount at regular intervals, fostering a disciplined savings habit. RDs offer guaranteed returns, making them ideal for short-term financial goals like higher education expenses.

  • Public Provident Fund (PPF): 

The Public Provident Fund (PPF) is a government-backed savings scheme with attractive interest rates. PPF accounts offer tax benefits on investments and maturity amount, making them a compelling long-term investment option. However, PPF comes with a lock-in period of 15 years with partial withdrawal flexibility after the seventh year.

  • National Savings Certificates (NSCs): 

National Savings Certificates (NSCs) are another government-backed savings scheme offering guaranteed returns. Investors can choose investment terms ranging from 1 to 5 years. NSCs are suitable for those seeking a fixed and secure investment option with regular interest payouts.

  • Make Investments in Gold: 

Gold has historically served as a valuable hedge against inflation. Investing in physical gold like coins or bars offers a tangible asset and a potential safeguard against market volatility. Alternatively, digital gold schemes or gold Exchange Traded Funds (ETFs) provide a convenient and liquid way to participate in the gold market.

  • Invest in Equity Mutual Funds:

Equity mutual funds offer the potential for high returns through diversification across various companies. Systematic Investment Plans (SIPs) allow for regular investments with a smaller amount, fostering a disciplined approach and benefiting from rupee-cost averaging. It's crucial to remember that equity markets are subject to fluctuations, so a long-term investment horizon is recommended for this option.

  • Investments via Recurring Deposits:

Recurring Deposits (RDs) offered by banks and financial institutions provide a low-risk, fixed-income option. By investing a fixed sum regularly over a chosen tenure, you earn a predetermined rate of interest. RDs are a good way to build a predictable corpus for your child's near-future needs, like education or a down payment. However, RDs typically offer lower returns compared to equity-based investments.

Key Investment Targets You Should Aim For

The key investment targets you should aim for while choosing a child saving scheme are:

School Education

School Education

With the fees of top schools being expensive, you need to plan for your child’s school education if you wish the best for your child.

Higher Education

Higher Education

Specialised courses like engineering and medicine are expensive. If your children choose to go for higher studies abroad, you will need to have a financial plan to support their ambition.

Marriage

Marriage

This is one of the most emotional milestones in one’s life. If your children choose to marry at the beginning of their careers, they may need your financial support to cover the marriage expenses. So, children’s marriage should be one of the goals in your financial planning.

Tips to Save Money for Your Children's Future

Some of the tips to save money for your children’s future are:

  • A long-term plan provides better returns. If you start early, you can invest small amounts to suit your pocket for longer periods.

  • Putting aside small amounts regularly helps accumulate money that can come in handy for your child’s future.

  • Look for additional benefits that will enhance your maturity proceeds while purchasing a life insurance plan.

  • The amount you save should be adequate to fulfil your child’s financial needs and should not exceed your budget. You should be able to pay premiums regularly to keep the policy alive. 

How To Choose the Best Child Savings Plan?

The inflation rate is not the only factor in deciding investment plans for your child. Other factors given below are equally important when choosing the best child savings plan.

  • Determine your financial goals concerning your child and choose a plan that aligns with the goals. You will be able to choose between a plan that has life cover or one with both savings and investment components.

  • Choose a plan with an affordable premium and flexible frequency so that you will not miss out on any premium payments.

  • The plan should have flexibility in premium-paying terms and policy terms. These terms should suit your budget as well as your financial goals.

  • The life cover offered is of great importance, The death benefit should be adequate to cover the future financial needs of your child.

  • Check the claim ratio of the insurance company, which decides the insurer's credibility.

  • Some of the lucrative plans can be Systematic Investment Plan (SIP), ULIP, or National Savings Certificates. 

  • Choose plans that are tax-exempt under Section 80C3 as well as Section 10(10D)

Factors To Consider Before Choosing a Child Savings Plan

Some of the factors you need to consider while buying a child savings plan are:

  • The goals or the reason for savings. If a child education plan is the primary goal, then be prepared and plan for heavier expenses if your child intends to pursue higher studies abroad.

  • Assess how much you want to save and choose a plan with the flexibility of premium payment and policy terms to suit your budget.

  • If you are going for a term insurance plan, choose a plan with life cover along with the option for riders as well. If you choose a fund option, then check if the fund aligns with your risk appetite.

  • The policy term depends on the goals of the child. For some, the term could be 15 years, whereas for others, it could be 20 years. 

Which Child Savings Plan is Right for You?

Some of the best child savings plan to secure your child’s future are:

1
1

Sukanya Samridhi Scheme

Sukanya Samnridhi Scheme is a government-backed scheme designed specially for a girl child. It is a low-risk investment that matures when the child turns 21 and can be used to fulfil her goals.

...Read More

2
2

Systematic Investment Plan (SIP)

SIP allows you to invest in a mutual fund scheme of your choice and at the frequency chosen. You can build a corpus for your child’s future over a period.

...Read More

3
3

Public Provident Fund (PPF)

It is a government-backed scheme with low risk. With the power of compounding interest in PPF, your investment will grow exponentially in 15 years. The part withdrawal facility after 7 years provides funds to cater to your child’s expenses.

...Read More

4
4

Debt Funds

The investment by debt funds is in fixed-income securities like bonds. They are less riskier than equity mutual funds. According to SEBI, there are 16 types of debt funds, and you can choose any.

...Read More

5
5

Gold

Investment in gold offers high liquidity, and the funds are immediately available during emergencies. The investment can be in gold coins, gold bonds, gold jewellery or in gold Exchange Traded Funds (ETFs).

...Read More

6
6

Term Insurance Plans

A term insurance plan is a common plan chosen for securing a child’s future. Look for a plan with life cover for financial security.

...Read More

FAQs on Child Savings Plan

1 What is the child savings policy?

A child savings policy is a savings plan that helps fund the goals of your child at different life stages.

2 How do I plan savings for my child?

Determine the goals and budget your savings accordingly. Start early so that you can invest less for higher returns.

3 What are the documents required while buying a savings plan for children?

You would require submitting a duly filled Proposal form along with KYC of the child and the parent/guardian. You might need to submit other documents, only on specific request, during the application process.

Here are some of the documents you might have to submit:

  • Proposal form
  • Identity proof (passport, voter ID card, Aadhaar, driving Licence)
  • Address proof (Voter ID card, Aadhaar, Passport, Utility bills, Driving Licence)
  • Age proof
  • Income proof

4 What are the tax benefits associated with Child Savings Plans in India?

The premium payments have tax benefits under Section 80C3, and the maturity/death payout has tax benefits under Section 10(10D)3. 

5 What is the minimum amount for investing in a Child Savings Plan?

The minimum amount for investing in a child savings plan is Rs. 250/-

6 What is the expected tenure period for a plan to receive its maximum value?

The maximum tenure for a plan to receive maximum value is 5 years but can vary with the institution.

7 Do children's savings plans provide partial withdrawal?

Yes. Children's savings plans provide partial withdrawal.

8 Can a minor be a nominee in a savings plan for children?

Yes. A minor can be a nominee in a savings plan for children but should be represented by a guardian.

9 What is the right time to start investing in a Child Savings Plan?

It is recommended to start early, as long-term investments provide higher returns.

VIEW ALL FAQ'S

Here's all you should know about Child Savings.

We help you to make informed insurance decisions for a lifetime.

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Disclaimer

1. Provided all due premiums have been paid and the policy is in force.  

2. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.   

3.  The above tax benefits are subject to conditions specified u/s 80C and u/s 10(10D) of the Income tax Act, 1961. The afore stated views are based on the current Income-tax law. Tax Laws are also subject to change from time to time. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

HDFC SL YoungStar Super Premium (Form No. P 501 UIN : 101L068V03) is a Unit Linked Non Participating Life Insurance Plan. Life Insurance Coverage is available in this product.   

HDFC Life YoungStar Udaan (101N099V04) is a Non-Linked, Participating, Life Insurance Plan. Life Insurance Coverage is available in this product 

^. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

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