1. Long-Term Investment Options
Any investment option will not suffice; the perfect investment strategy for your child should include appropriate long-term and short-term investment options. Every asset class or investment option has its own risk-return profile. Each investment requires a specific time to offer the best risk-return profile based on this risk-return profile.
As a result, a long-term investment option or asset class, such as equity funds, may be ideal as a child savings plan.
However, as you get closer to your goal, you'll need to put your money into more secure investments. As a result, the child plan should include a fixed income or debt fund option that you can use to protect your funds.
2. Goal Protection
We've already mentioned that insurance is an important component of a good child's future plan. Simple life insurance, which pays out a lump sum upon the death of a parent, is insufficient. Because the child will eventually need to achieve the goal of higher education and independence, the insurance must be for the goal.
This is exactly what the goal protection feature does. If this option is available in your child savings plan, your family will receive not only the life cover amount, but also return on the investment. The plan will mature when it is supposed to and pay the child the maturity value.
3. Automated Risk Management
When investing for the long term, say 5 years or more, you can take a little more risk in exchange for a higher growth rate. For example, you invest a larger portion of your total investment in the plan's equity growth funds.
4. Option of a Tax-Free Partial Withdrawal
Higher education is usually a gradual climb with multiple milestones rather than a single destination. The best child plan should cover all of these milestones while also reducing your stress levels.
The best child plan will allow you to withdraw from the accumulated fund without incurring any tax consequences or affecting your investment. You can take multiple partial withdrawals from these child plans while continuing to invest in the next.
The child plan allows you to invest in both your child's higher education and marriage goals at the same time.
5. Reduced Management Costs
You'd think that an investment product that includes features like automatic portfolio management, life insurance, and goal protection would be costly. Fortunately, the situation is reversed.
How Can You Make Your Child Savings Account Tax-Proof?
A child plan is a long-term investment with potentially significant capital gains. As a result, tax efficiency becomes critical in this situation, and here's how to ensure it :
"Begin with a sum assured that is at least 10 times your annual income."
For example, if you plan to begin investing Rs. 1 lakh per year, make sure you have a life insurance policy with a minimum coverage of Rs. 10 lakhs. When you want to increase your investment in the plan in the future, this will help you keep it tax-free.
Plans for children are life insurance plans. Generally, all life insurance plans come with tax benefits. However, these benefits are in accordance to the current tax laws that are subject to change from time to time. A few years down the road, you'll probably want to put more money into the plan. As a result, the additional life insurance.
As a result, using the best child plan will enable you to not only invest in your child's future but also to protect it with maximum tax efficiency.
