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When Is the Right Time to Purchase a Savings Plan for My Child?

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When Is the Right Time to Purchase a Savings Plan for My Child?
September 22, 2022

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Every parent’s top priority is planning for their child’s future. They plan their finances carefully to ensure that they put enough money away for their child’s future goals. But, we all know that savings alone cannot sustain us in the future. With a child investment plan, parents can actively grow their wealth specifically to help their little ones in the future. Many parents struggle to understand how crucial a child savings plan is for their kids. The question they find most difficult to answer is – when is the right time to purchase a plan? As with most investments, the earlier you start, the better for you and your little one.

How and When to Invest In a Child Savings Plan

  • Understand Your Timeline

    Whenever you plan for future finances, you must start with a timeline. How long would you like to stay invested? When do you want your child to enjoy the maturity benefits? Say you have a toddler about to start kindergarten. Ideally, you want to invest and grow your money to send them abroad for their post-graduation. You have roughly 17 years to stay invested. Once you have a timeline, you can work out how much you need to invest to reach your goal.

  • Think About the Cost of Education

    When you have a baby, you have no idea whether they’d like to grow up and become a doctor, an engineer or a teacher. You must plan for every scenario. Start by looking at the cost of all these courses today. Select the most expensive one and use that for all your calculations. Say you’d like to pay for your child to attend the best business school in India. The current cost of an MBA is INR 10,00,000. Your child will be headed to college in 18 years. You must use the rate of inflation to estimate what the cost of the same course is likely to be in two decades. This will help you understand your target amount.

  • Assess Your Assets and Liabilities

    While making plans for the future, you should not neglect your present. Think about what assets and debts you currently have. Include both aspects into your financial plan. As far as possible, keep your child investment plan separate from other savings and investments. By doing this, you safeguard your child’s financial future.

  • Get Insured

    Nobody knows what life has in store for us. So, everybody must get a good life insurance policy. Most parents opt for term plans since they offer high sum assured amounts at very reasonable premiums. You can name your child as your beneficiary. By doing this, you can rest easy knowing that your child has a financial security net to fall back on when they need it the most.

  • Have a Back-up Plan

    Apart from regular expenses like school fees, you may also have to shell out money to indulge your child’s hobbies and passions. So, make sure you have another savings and investment plan that enables you to meet these costs while keeping your child savings plan intact.

Best Investment Strategies for Your Child’s Future

Once you have an idea of how long you need to stay invested and what your final goal is, it’s time to find the ideal investment. Let’s take a look at some of the most beneficial investment strategies:

  • Systematic Investment Plans

    A Systematic Investment Plan (SIP) offers multiple benefits. It provides you with structure and helps you slowly build up a corpus to invest in your child’s future. You can use the funds from the SIP to invest in equities for high returns. These returns can help you beat the rates of year-on-year inflation. Additionally, you can use the power of compounding to your advantage. SIPs also inculcate a healthy saving habit.

  • Debt Funds

    As compared to equities, debt funds are far more secure. They provide stable returns over time. Typically, returns range from 5% to 7% per year. These investments are ideal for recurring expenses, such as your child’s school fees. Debt funds also provide more flexibility since investors can remove their money at any time.

  • Unit-Linked Insurance Plans

    Unit-Linked Insurance Plans (ULIPs) allow investors to grow their wealth while also providing life cover through a child insurance plan. The sum assured serves as a failsafe in case anything happens to the policyholder. Additionally, the investment aspect provides the investor with opportunities to grow their wealth. Here, they can choose how to split their investment across debt and equity funds. Individuals with longer investment plans can opt for more equities than debt funds, while those with tighter timelines should favor debt over equities.

    Apart from planning for your child’s future with a child savings plan, you must also inculcate good saving habits from a young age. Involve your child in basic financial planning activities. Teach them the importance of investing in the future. Show them how to evaluate financial risks and make adjustments when things start to go awry. Most importantly, make sure you teach them to read all the fine print before signing on the dotted line.

Related Articles

ARN: ED/09/22/28846

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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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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, HDFC Life is only the name of the brand. The name of the company, name of the brand and name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your insurance agent or the intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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