Child Insurance Plan Vs Mutual Fund Investment: What is the Difference?
Health Insurance

Child Insurance Plan Vs Mutual Fund Investment: What is the Difference?

In today’s times, when prices are soaring, it is important for you to financially plan for your child’s future. However, with many products available, it becomes challenging to choose one that suits your financial goals and your child’s needs. This article will help you make an informed decision by explaining the difference between a child insurance plan and mutual funds.

What is a child insurance plan?

A child insurance plan is a mixture of insurance and investment, offering your child the ultimate form of financial security. This kind of plan can protect your child from the uncertainties of life by offering death benefits if the insured parent passes away. If the parent outlives the tenure, the child can benefit from the maturity benefit paid off in a lump sum. You can use this sum to fund your child’s higher education or rely on the flexible pay–out option to finance other important milestones and events in your kid’s life.

What is a mutual fund?

A mutual fund is an investment instrument wherein various investors pool their money to achieve a similar investment objective. Usually, an asset management company managers the fund and invests it in stocks, equity, bonds, and other securities. If you choose to invest in a mutual fund, you have to hold a specific unit of a type of investment together with other investors who are holding their units in the same. Each unit is traded as per the Net Asset Value (NAV), and the income that is generated is distributed according to individual proportions.

Child Insurance Plan Vs Mutual Fund: How are they different?

Child insurance plans and mutual funds differ from each other in the following ways:

  • Stability: A child insurance plan can help you create a steady investment plan over a tenure. You can pay premiums each year, and the insurance company in question has to provide a maturity benefit that can help with your child’s education, move abroad, marriage, etc. On the other hand, with mutual funds, you cannot be sure about the corpus you will be left with since they offer no guaranteed returns. Whether due to market fluctuations or value depreciation, your mutual fund investment can lead to losses.

  • Risk appetite: Child insurance plans are a combination of investment and insurance wherein a portion of your premium is invested in equity and debt funds and other classes of securities. Thus, it is relatively secure and allows you to invest per your risk profile. Whereas, you can earn higher returns with mutual funds if you are prepared to take on higher risks, subject to the stock market.

  • Partial withdrawals: With a child insurance plan, you can make partial withdrawals during the tenure if you feel an urgent need. There is a specified lock–in period with mutual funds so you cannot opt for partial withdrawals.

  • Tax benefits: The premium you pay for a child pan is exempt from tax deductions as per Section 80C of the Income Tax Act, 1961. Plus, the maturity amount is eligible for tax exemption under Section 10(10D) of the Act. With mutual funds, investments up to INR 1.5 lakh p.a. are exempt from tax deductions under section 80C of the Income Tax Act, 1961. However, they are subject to 10% tax if the long–term capital gains exceed INR 1 lakh.

Now that you know more about child plan vs mutual funds make sure to opt for an investment option that meets your needs. You can also avail a comprehensive health insurance policy for protection against financial losses in case of any medical exigencies.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.

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