BOMBAY, 28 June 2004 — When a majority of the people were asked “Why do you earn?”, the answer invariably was to secure their children’s future. Once the basic needs in life — food, clothing and shelter are taken care of — then comes the quest to secure not only our future but, more importantly, the future of our children.
Keeping this objective in mind, this week, we take a look at the various Children Plans on offer that aims to protect your child’s future. At present, there are nine Children Plans in the mutual fund industry and all have given reasonable returns over different time periods. Most of these schemes offer free accident insurance along with the units. These funds are balanced by nature with some more inclined toward equity and some toward debt. These funds function like any other mutual fund plan but are specifically targeted at children. For this reason, the fund management style is never too aggressive.
The equity-oriented funds are Prudential ICICI Child Care-Gift, HDFC Children’s Gift Investment, and Principal Child Benefit SS-Career Builder. The debt-oriented funds are Templeton India CAP Gift Plan, HDFC Children’s Gift Saving, Prudential ICICI Child Care-Study, Magnum Children’s Benefit Plan and UTI Children’s Career Plan (CCP). The Tata Young Citizens Plan is a truly balanced plan with neither the debt nor the equity allocations exceeding 50 percent at any point of time. It is pertinent to note that most of these schemes charge an exit load for early redemption to ensure that the investor stays in the scheme for some minimum time. And, more importantly, none of these schemes offer assured returns.
Some may feel that there is no need to lock-in funds in such mutual funds when the parents are already saving money in the bank or have invested in some open ended funds which are more liquid. Well, fund managers explain that the ‘lock in’ mechanism ensures that the fund manager is able to take a longer term call thus cutting down on the portfolio turnover. Moreover, as the returns get accumulated, the child gets a major chunk of money at the time when it matures, benefiting the child for the purpose of education or marriage.
UTI Children’s Career Plan: There has been a lot of disappointment with UTI after it abruptly shut down it hugely popular scheme for children. Yet one need not get disheartened and instead take a look at this plan for children.
Formerly known as Children’s College and Career Fund, the Children’s Career Plan (CCP) offers two options — ‘Balanced’ and ‘Debt’. Further, in the ‘Balanced Plan’, one can choose between the ‘Scholarship’ and ‘Growth’ options.
While the scholarship option seeks to provide payment of scholarship on a half yearly/yearly basis, the growth option makes no such payments. Instead, full or partial repurchase is allowed to the beneficiary. In both cases, i.e. in the scholarship and the growth options, the child gets the benefit only once he/she attains 18 years of age. In fact, investment in the scheme can only be made for a child below 15 years of age.
Since, the amount granted as scholarship does not form a part of the income of the child, there is no danger of the income earned being clubbed with the income of the parent.
HDFC Children’s Gift Plan: HDFC Children’s Plan is designed to provide a lump sum to the child on attaining a specified age. The flexibility of this policy is that any adult including parents, grandparents, relatives, etc. can take the policy on behalf of the child.
The policy can be taken for a child at any age. It is advisable to go in for a policy early, as the premium that will be paid will rise with the increase in the age of the child. Further, there is the freedom to select the maturity of the policy. The term can be decided according to the future needs of the child, like education or marriage.
There are certain minimum eligibility criteria. The minimum age at entry for the life assured is 18 years and the maximum age at entry is 60. Similarly, the maximum age at maturity of the life assured is 75 years. The minimum term for the policy can be 10 years and the maximum term can be 25 years.
The policy has three options, which help the parents to choose the timing and the types of policy benefits to be paid on maturity or death of the insured parent. First option is the Maturity Benefit Plan, where on the death of the insured parent during the policy term future premiums are waived and the policy continues till maturity.
Second is the Accelerated Benefit Plan, where on the death of the insured parent during the policy term, the policy stops and the sum assured and bonuses are paid.
The third is the Double Benefit Plan, where on the death of the insured parent during the policy term, the sum assured is paid and future premiums are waived and the policy remains in force.
ING Vysya’s Creating Life: The plan is targeted at young parents between the ages 25-40 years with small children. The plan aims to fulfill the protection need to provide for young children in the event of loss of the parent.
The plan is targeted at young parents between the ages 25-40 years with small children. The plan aims to fulfill the protection need to provide for young children in the event of loss of the parent.
At maturity, the full sum assured is paid along with the accumulated compound reversionary bonus and a terminal bonus. A unique feature of the plan is that besides the bonus on the basic sum assured, the accumulated bonus on the policy will also earn an additional bonus.
Thus, at maturity a child would receive the basic sum assured along with the compounded reversionary bonus and the terminal bonus, which may be (depending on the policy term) even 1 3/4 times the sum assured. At maturity, the child has the option to take the maturity proceeds either in lump sum or in three or five equal annual installments commencing from the date of maturity.
Templeton Children’s Asset Plan: This scheme from Templeton Mutual Fund gives a choice of two plans — Education & Gift. Under the Education Plan, the applicant has been given the freedom to withdraw the original investment once the child turns 18. The benefit to the child accrues in the form of dividends, which the child can withdraw anytime after four years from the date of the first investment.
Under the Gift Plan, it is the beneficiary child who is allowed to withdraw the outstanding units partially or fully when on reaching an age of 18 years. The fund strives for minimum risk and aims to invest around 90 percent of its assets in debt and related instruments.
Prudential ICICI Child Care Fund: This scheme too offers a choice of plans — Gift and Study. The Gift plan is considered ideal for people wanting to invest for a child below 13 years of age while the Study plan is meant for those above 13 years of age.
While the Gift Plan has the freedom to invest as much as 60 percent of the funds in equity, the Study plan contemplates only a maximum of 15 percent in equity. The Study Plan will have investments for children above 13 years of ago and is thus low risk as its exposure to equity is lower.
An exit load is charged only if redemption is made before the expiry of three years from the date of the investment. The legal guardian is free to withdraw from the fund without charge even if the child has not attained eighteen years of age. The fund also offers a scholarship scheme and a Personal Accident Insurance cover.
Life Insurance Corporation (LIC): It too offers a slew of investment tools for your child’s future. Like Children Money Back Assurance Plan, Jeevan Baalya, Jeevan Kishore, Jeevan Sukanya — for the girl child, Bal Vidya to plan for children’s education and Children’s Deferred Endowment Assurance Plan. Yet, keep in mind, all these are insurance plans and LIC is not a mutual fund. Not as in children’s plans with most of the mutual funds having a lock-in period and giving added benefits of insurance, it would not be illogical to look at the schemes of LIC also.
Tata Young Citizens Fund: The investment objective of the scheme is to provide long-term capital growth along with steady capital accretion. The fund offers two alternatives — Anytime Exit and Lock In. Its also offers a Personal Accident Insurance Cover
As the name suggest, in the anytime exit option, one is free to redeem before the child turns eighteen. But the carrot has stick. A graded exit load applies to the ‘Anytime Exit’ option. Exit before seven years is charged an exit load depending on the time for which the person has remained invested in the scheme. In the lock in option, redemption can be made only after the child turns 18.