Child Insurance Plan Vs. Mutual Fund- Which is a Better Investment?

Considering the rising inflation effect, it becomes significantly important to build enough corpus for your child's future. However, with the availability of so many investment options, it becomes quite tricky to opt for the best plan. Let us put a child insurance plan vs. mutual fund to determine which is better for the child's future goals.

Investing in your child's future:A wise decision & a loving choice

Benefits of Investing In Child Plan

Waiver of Premium Benefit

Future Premiums are paid by the insurer upon death of policyholder

Flexible Payout Options

Your premiums help your child achieve their dreams through lump sum or regular payouts

Wealth Boosters

Get rewarded with Wealth Booster and Loyalty Bonus for staying invested with us

Zero Commission

We charge no commission when you buy from us. Also buy online & get extra

Tax Benefits^

You get tax benefits under Section 80(C) and no tax on returns under Section 10 (10D)

Investment Flexibility

It offers the flexibility to invest at regular intervals or as a one-time contribution

We are rated^~

7.7 Crore

Registered Consumer

Insurance Partners

4.2 Crore

Policies Sold

Nothing Is More Important Than Securing Your Child's Future

Invest ₹10k/month your child will get ₹1 Cr^# Tax-Free* on Maturity

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We are rated^~

7.7 Crore

Registered Consumer

Insurance Partners

4.2 Crore

Policies Sold

Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

What is a Child Insurance Plan?

A child insurance plan is a blend of insurance plus investment. It offers ultimate financial security for the policyholder’s child.

Considering the uncertainties of life, this plan offers death benefits to the child by covering the insured parent’s life. If the insured outlives the policy tenure, the maturity benefit is provided in a lump sum payment.

This way policyholder can use the money for your children’s higher education or their other important life events. Not only this, a child plan comes with a flexible pay-out option to financially aid the child of the policyholder at important milestones of his/her life.

What is Mutual Fund?

Let's understand the definition by its name. When a large number of investors pool in money with the same investment objective they create a mutual fund. An Asset Management Company manages the accumulated money and invests it in equities, stocks, bonds, and other market securities.

As a mutual fund investor, you hold a specific unit of one type of investment with other investors who hold their units in the same. Each unit is traded based on Net Asset Value (NAV). The income generated from mutual funds is then distributed on an individual proportionate basis.

One thing to note here, the NAV keeps changing due to the volatile market conditions which further affect the overall gains/income. This is why it is also considered a high-risk investment scheme.

Invest More Get More

Invest ₹10K/Month YOU GET ₹1 Crores^* For Your Child View Plans

Invest ₹8K/Month YOU GET ₹80 Lakhs^* For Your Child View Plans

Invest ₹5K/Month YOU GET ₹50 Lakhs^* For Your Child View Plans

Standard T&C Apply *

Child Plan Vs. Mutual Fund: A Comparison

When it comes to saving a portion to secure your child's future, it is very important to invest in a way that the corpus built over years would benefit the child. It can be confusing to decide whether to opt for a child savings plan or mutual fund.

With the help of below mention comparison, it can get easier to make an informed decision:

Parameter	Child Plan	Mutual Fund
Steady financial support at various life stages	Child insurance plans help you build a steady investment over its tenure. You pay premiums each year and the insurance company ensures a maturity benefit to financially aid your child at different stages of his/her life like for higher studies, moving abroad, and marriage.	When it comes to mutual funds you cannot be certain about the steadiness of your corpus. As mutual funds do not offer fixed guaranteed returns. Due to market fluctuations, depreciation in the value of your mutual fund can cause losses.
The Role of Risk Appetite	A child plan is a kind of insurance plus investment plan which offers a life cover and investment. Here as an insurer, you invest a certain portion of your premium in the market funds like equity, debt funds, and other securities. So, a child plan comes with security and the insurer invests your money based on your risk appetite.	Mutual funds are entirely based on the more you will take risks, the more you have chances of higher returns. However, investment in mutual funds is subject to market risks.
Premium Waiver Rider Benefit	With the help of a premium waiver rider, the policy can remain in force even n case of any eventuality during the policy tenure. The insurance company helps the policyholder's child at crucial stages of life and at the same time waives off the future premiums. The child receives a maturity benefit at the end of the policy tenure.	There are no further added benefits under the mutual fund.
Partial withdrawals	A child insurance plan allows the insured to make partial withdrawals during the policy tenure if there is an urgent need for funds for the child's education or his/her other needs.	There is no option of partial withdrawals in mutual fund investment as it comes with a specified lock-in period.
Tax Benefits	The premium paid against the child plan is exempt from tax deductions under section 80C of the Income Tax Act, 1961. The maturity amount is also eligible for tax-exemption U/S 10(10D) of the IT Act.	Investments for up to Rs.1.5 lakh per annum in mutual funds are exempted from tax deduction under section 80C of the Income Tax Act. However, a 10% tax on Long-Term Capital Gains above ₹1 lakh is applicable- this further reduces the overall returns on investment.

Wrapping it Up

Child insurance plans and mutual funds both are good investment options. However, you wouldn't want to take high risks when it comes to building a tidy corpus for your child's future. The mutual fund investment is a great investment tool for someone who is disciplined with market fluctuations and can take high risks. While on the other hand, a child plan offers a steady corpus with a life cover that safeguards one’s child's future in case of his/her untimely demise.

Unique Triple Benefit

Future premiums paid by insurer on parent's death

Monthly income to fund child's education on parent's death

Lumpsum payout to family on parent's death

Returns

Return as of Apr 2024
12%-15%
8.2%
7.1%

Availability

Availability
Girl Child or Boy Child
Girl child only
Girl Child or Boy Child

Max Entry Age
Upto 18 years
Upto 10 years
No Age Limit

Flexibility

Invested Amount can be Withdrawn after
5 years
21 years
15 years

Conditions for Premature closure
Anytime after 5years
Extreme Compassionate Grounds
Serious Ailments or for education

Penalty on Premature Closure
No Penalty after 5 years
Returns reduced to Post Office Savings rate
1% reduction in interest rate

Max deposit amount in an year
No Limit
1.5 Lacs
1.5 Lacs

Documentation

Documentation Required for Withdrawal
Low
High
Low

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†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.