Child Ulip or MF

[hamir]

Hi,

I want to start saving for my 2nd child. I already have a child policy from HDFC for my first kid. I am confused on how to save for 2nd child..open new policy or go MF route. I do monthly investments in MF's and want to keep that separate from what I want to save for my Kids. I have observed that Child policies have high charges for first 3 years(e.g. till now I have put 72k but policy value is 40k) but guess they are far easy to manage and may start giving results after 5 years or so. MF may/may not give better return then ULIP and also ulip has the advantage of paying rest of the premiums incase of unfortunate event.

Let me know if you need more information.
Any suggestions would be appreciated.

 

[nikrod]

Hi,

I want to start saving for my 2nd child. I already have a child policy from HDFC for my first kid. I am confused on how to save for 2nd child..open new policy or go MF route. I do monthly investments in MF's and want to keep that separate from what I want to save for my Kids. I have observed that Child policies have high charges for first 3 years(e.g. till now I have put 72k but policy value is 40k) but guess they are far easy to manage and may start giving results after 5 years or so. MF may/may not give better return then ULIP and also ulip has the advantage of paying rest of the premiums incase of unfortunate event.

Let me know if you need more information.
Any suggestions would be appreciated.

I would suggest you to avoid ULIPs. ULIPS would be heavy on initial charges.

For your 2nd child, you can invest in equity oriented balanced funds which will give stable returns over long term. For unfortunate event you nedd to be insured properly. If you do not have appropriate insurance, please buy a term insurance policy as soon as possible.

Some of the good balanced funds you can consider are

HDFC Prudence
HDFC Balanced
Reliance RSF Balanced
Birla Sun Life 95
Canara Robeco Balanced
DSPBR Balanced
Tata Balanced

You can also consider child benefit plans from MF houses. But best way would be SIP in a plain balanced fund.

 

[hamir]

Helpful reply...Anybody else want to comment !!

 

[AW10]

I will agree with nikrod's suggestion.

Some months back I did analysis on this topic and made this post.
plz go thru that for my views on child policies.

http://www.traderji.com/insurance/34534-regarding-new-jeevan-shri.html#post395211

Happy Investing.

 

[URPradhan]

The fundamental principle of investment is "Never ever mix investment with insurance"

Having said that, for your insurance needs you need to buy sufficient sum assured (SA) TERM policy (again the keyword here is TERM policy).

Just ask yourself a question ? For which you need insurance ? A person never ever buy insurance for self, in fact he/she buys insurance for his/her dependents. I ve mentioned this here, because some policies waive rest premium in case of sad demise of a child/parent. And having a term insurance policy for self we have taken care of the child/family. But someone do not need money when some misfortune happens to his/her child.

Then after a mental peace having sufficient TERM insurance policy, you have to think about investment of your hard earning money. Again never ever put all eggs in one basket. Invest something in diversified MFs, few in debt funds, few in bank FDs/PPF/PF and at last few in gold through Gold ETF.

So, for me buying child plans from insurance firms/institutions are not worth as compared to keeping investment in suitable MFs through SIP route. (correct me if I'm wrong anywhere understanding the needs)

 

[hamir]

Thanks Pradhan for reply... I am already at that step where I have covered myself adequately. I have a term insurance of atleast 8-9 times my annual income... I am investing in MF's from 4+ years now...and I have strong belief in them.

This query I posted to know , what is good in long term...child plan(ulip) or MF's... both from return and managebility perspective.

 

[nikrod]

Thanks Pradhan for reply... I am already at that step where I have covered myself adequately. I have a term insurance of atleast 8-9 times my annual income... I am investing in MF's from 4+ years now...and I have strong belief in them.

This query I posted to know , what is good in long term...child plan(ulip) or MF's... both from return and managebility perspective.

MF's score heads on against child plans. :thumb:

 

[alroyraj]

Hi,

I have observed that Child policies have high charges for first 3 years(e.g. till now I have put 72k but policy value is 40k) but guess they are far easy to manage and may start giving results after 5 years or so. MF may/may not give better return then ULIP and also ulip has the advantage of paying rest of the premiums incase of unfortunate event.

Let me know if you need more information.
Any suggestions would be appreciated.

MF plans like balanced funds are the best option. Earlier they were 65% debt and 35% equity but the Govt revised the tax treatment so it has become 65% equity and 35% debt.
If you compare the performance balanced funds have given more stable returns,you can see by creating a portfolio on value research online.

Child plans like any ULIP has high upfront charges,so after the cut a chunk of your first years premium ,it is quite the opposite of compounding, you lose the benefit of investing that much. And your money has to first grow to cover the cost of premium paid and then still further to yield returns for you.
Hence the costs need to be taken into account.
Just the benefit of paying future premiums may not be the sole decision variable to consider.
If you are worried about segregating investments ,and I agree it is an attractive feature then select different performing funds for the same.
The typical costs are:
Premium allocation charge (vary from 0 rarely to even 30%)
Policy admin charges
Fund admin charges (1.5 to 3.5)

Some other issues to consider is who offers the plan and if it is an insurance company do you really need to cover some risk more or if it is offered by a bank having a successful MF biz then you can expect decent returns from the investment and cover risk (since they have Insurance biz).
Also ULIPs have 2 layesr of charges often as the equity part is invested in MFs of the sister company (where the expense ratio is incurred)

 

[sureshsharma1979]

Thanks Pradhan for reply... I am already at that step where I have covered myself adequately. I have a term insurance of atleast 8-9 times my annual income... I am investing in MF's from 4+ years now...and I have strong belief in them.

This query I posted to know , what is good in long term...child plan(ulip) or MF's... both from return and managebility perspective.

Hi hamir

I m hving a ulip policy from icici, the good part is 100% allocation was done in the funds, unlike others where we plays huge fees.

The flip side is the is no insurence. i.e u will not get any benifit in the case of mishappening.

Thnk suresh

 

[hamir]

Thanks for the valuable inputs from Raj/Nikrod
Thanks Suresh for sharing your experience.

I have HDFC young star and I have invested almost 76k till now and value of investment is just 40k.... I understand that it's long term policy for like 20years and it would pickup from here on...but just as an example how much a typical ULIP eats into your premium is quite evident from here... I am sure if I had invested this 76k in some leading MF...it would have been 1 lac +

Anyhow I don't mind as it's long term and I have kept it in 100% growth mode and would be like this for next 15 yrs .. and I do have benefit for the premium fill up if something happens to me ..God forbid

But for my second kid I am going with MF now. I would choose a good large cap mutual fund and start investing and tracking it's progress periodically..

I have covered myself with a term plan ...so for now going with MF looks to be a best approach and then I can compare after 20 years what performed better..stay tuned... KIDDING :clap:

In last, I found this forum quite helpful. I was investing in MF's from last 3-4 years but the progress and discipline I see in my investment now is entirely different.

Happy weekend !!