Child Plans vs. Child Funds: Which Is Better for Your Child's Future?

A child plan enables parents to save funds to cover future expenses, such as their child’s higher studies, marriage, or other expenses. While looking for a Best Child Plan, a parent may come across many options that would offer them financial assistance, but are different in certain aspects. Where some parents opt for a child plan, others may go for a child fund. With the help of this article, let us understand the differences between the two & which plan is best suited for a child’s future.

What are Child Protection Plans?

A child protection plan offers dual benefits of savings & protection for the child’s secure future. It provides life protection coverage for the parents & corpus funds accumulated by the parents for the financial future of the child. This ensures fulfilment of the child’s future needs even in the parents’ absence.

Benefits of a Child Protection Plan

Provided are the benefits of a child’s Protection Plan:

Life Coverage

These plans include life coverage, which protects the child’s future financial goals in case of the sudden demise of the policyholder during the policy tenure.

Systematic Withdrawals

Some child plans offer options like automatic payments or systematic withdrawals, allowing the children to meet the financial requirements over a period of time.

Bonus Additions

Some of the plans offer rewards for being invested for a longer tenure. Where ULIPs, on one hand, add units as loyalty additions, money back & an Endowment Plan adds a bonus amount. These bonuses can be availed at the time when the plan matures.

Partial & full withdrawals are available

This plan allows one to avail a loan against the policy without any need to withdraw the funds or break the investment

Riders

These plans offer many different riders that can be added to upgrade the plan at some added cost, such as accidental riders, critical illness riders, waiver of premium riders, etc.

Choice of Funds

The investment provider offers investors an option to choose funds among different options available, such as debt, equity, or money-market instruments.

Premium Waiver Benefit

In case the policyholder dies at any time during the policy tenure, the plan provider will be liable to pay the sum assured together with all future premiums till the maturity date.

Taxation Benefit

The premium paid towards the plan is eligible for tax benefit, maximum up to INR 1.5 lakhs u/s 80C of the Income Tax Act, 1961. Also, the maturity & death benefits are exempt u/s 10(10D) of the Income Tax Act, 1961.

What are Child Funds?

These funds take care of all your child’s future milestones, such as career, marriage, etc. These investments include investing the funds in debt & equity, which ensures long-term capital growth. The choice of funds can be made depending on the risk tolerance level, financial objectives, & investment horizon of an investor.

Benefits of a Child Fund

Provided are the benefits of a child fund:

Goal-Oriented Wealth Creation

These funds help parents meet their child’s milestones, such as marriage, career, etc.

Market-Linked Growth Potential

Due to these plans being market-linked, they offer high potential for growth in terms of returns.

Diversified Portfolio

It involves spreading investment across different asset classes, which reduces the risk.

Professional Fund Management

These funds are managed by expert staff members, letting an investor make an informed decision.

Inflation-Beating Returns

The child fund helps generate returns beating inflation over a longer tenure.

Investment Flexibility

These funds allow parents to invest either in a lump sum or periodically, depending on their financial conditions.

Differences between a Child Plan & a Child Fund

Provided are the differences between a child plan & a child fund:

Basis of Difference	Child Plan	Child Fund
Objective	This plan offers the dual benefits of protection & investment for the child’s future.	This plan helps build a dedicated corpus to secure the child’s future requirements.
Life Cover	This plan includes life cover.	This plan does not offer any additional life cover.
Nature of Support	These plans also serve as an investment support as they involve payment of premiums towards the maturity benefits as well.	As these funds are market-linked, they do not always offer assured returns.
Taxation Benefits	The premiums paid are eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. Additionally, the death benefits are exempt from tax u/s 10(10D) of the Income Tax Act, 1961.	The investments made towards the fund are eligible for a tax deduction u/s 80C of the Income Tax Act, 1961. Additionally, the interest earned thereon is exempt from tax according to the Income Tax Act, 1961. But, the long-term capital gains would be taxed @10% if above INR 1 lakh.
Partial Withdrawals	Some of the child plans provide an option to withdraw funds partially in case of any emergency, once the lock-in period has been met.	There is no such provision for partial withdrawals.
Risk Portfolio	These plans’ main objective is to safeguard the financial future of your child, where the choice of investments is dependent on the risk tolerance level of the investor.	This plan is closely relatedto market risks, hence offer returns that are directly proportional to the associated risks.
Investment Approach	These plans follow a conservative investment approach along with protection benefits, where returns are considered secondary compared to capital protection.	This fund offers investors the opportunity to invest their funds in a diversified portfolio, i.e. backed by the professional staff & research team members.
Additional Benefits	This plan includes additional rider benefits, enhancing the current plan at an added cost.	They do not offer any additional benefits other than those that are mentioned in the policy document.

Which is Better- Child Plan or Child Fund?

Investment Goal & Age

Assess the amount of funds required to be invested depending on your child’s age.

Risk Appetite

If an investor is willing to accept risks, invest in child funds resulting in wealth creation. If they are not ready to take risks, invest in a child plan.

Need for Returns

If an investor is seeking lump sum maturity benefits for their child, opt for a child plan. If returns are the main objective, & willing to accept risks, opt for a child fund.

Conclusion

The decision of which one to choose depends on the financial objectives, risk tolerance level & investment horizon of an investor.

Author Profile

Adam Regan: Deputy Editor

Features and account management. 3 years media experience. Previously covered features for online and print editions.

Email Adam@MarkMeets.com