Securing a child’s financial future has always been a priority for parents, and will continue to be so. However, the ways to achieve that financial security has to keep changing with the times. Today, factors like rising inflation, higher education fee, and after-effects of the pandemic have made it imperative to get an early head-start to fund your child’s education planning.

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If we talk about India, the country has been projected to be among the fastest-growing economies, especially in Asia. This has made India an attractive investment avenue not just for its citizens but also for NRIs looking to invest in their children’s future. Adding to that, the pent-up demand after the pandemic has further widened the scope of economic progression in India, thereby opening up more investment opportunities. Here is a guide to help NRIs navigate through investment options in India that not only guarantee good returns but also shield their child’s future against uncertainties.

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Benefit from the market transitions

If you have a risk appetite and want to leverage the market upswing with a return of up to 12 to 15 percent, then Unit Linked Insurance Policies should be your consideration for your child's educational future. Popularly known as ULIPs, these Child plans are advantageous as they help you grow and multiply your wealth by investing in a mix of equity, debt, or hybrid funds basis your risk appetite and requirements. Although this policy allows for partial or total withdrawal after the five-year lock-in period, continuation for a more extended period is advised as the policy has been purchased to fulfil a non-negotiable goal of your child. In addition, in case of the demise of the insured parent, the future premiums are waived off; the insurance company pays the future premium to ensure children can fulfil their education and dreams. Also, Life Cover is paid out to the family to meet any immediate expenses. Few plans also provide Regular income benefits in case of the demise of the parent to meet regular expenses.

Securely invest in a child's education

When investing in your child's future, the starting point is to ensure their academic needs are fulfilled. This is regardless of which field or course they pursue. However, to gauge this expense, it is essential to keep in mind the steep increase in the cost of education fees. For instance, in the last two decades, the tuition fees of universities in the USA have increased about 1.5x to over 2x; and in India, an average program at IITs costs a minimum of Rs 2 lakhs per year, up from a sheer Rs 25,000 in 2008.

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Those who prefer moderate risk in their investments can opt for a capital guarantee plan. This plan benefits from providing a full capital guarantee to the investors. Unlike a pure ULIP, this plan safeguards the principal amount while you get the benefit of market-linked returns. Furthermore, it also comes with an added advantage of insurance cum investment. Thus, at the end of the policy duration, your kid can fulfil their educational desires with a lump-sum amount. Such a plan can offer a wide range of fund options with an average return of eight to 11 percent. In case of the untimely demise of the parent, the amount invested in the market-linked plan is paid by the insurance company and the plan continues giving maturity benefits to the child. Additionally, life cover benefit is paid out to the family.

Guard their future with guaranteed returns

To build a safe and secure corpus, opting for a guaranteed return plan is often a popular choice due to its risk-free nature. This plan is designed specifically for risk-averse investors by providing maturity benefits, regular guaranteed income payouts along with life insurance coverage. In addition, the investment aids in the youth's future by delivering a steady stream of income for the next 25 to 30 years. The returns run as high as 6.5 to 6.7 percent in this plan, which is completely tax-free.

Insurance-cum-investment come with many benefits, some of which are financial protection at maturity age and if something unfortunate happens to the policyholder. It also combats education inflation, which in India ranges between nine to 10 percent per year. Also, the premium paid towards the child plan is exempted from taxes of up to Rs. 1,50,000 per year under Section 80C of the Income Tax Act 1961. The maturity and income payout, too, is tax-free under Section 10(10D) of the Income Tax Act.

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To recapitulate, choosing the right plan is as essential as planning a bright future for your child. While no one can predict the future, one can certainly prepare well ahead. You can start investing as early as when your child turns three months old. Having time on your side is a huge bonus as you will be able to create capital that will be sufficient for them when they need it the most. So, check the plans online, measure them against your requirements, and fulfil your child's educational dreams.

The author, Vivek Jain, is the Head of Investments at Policybazaar.com. Views expressed are personal.

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