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My child's age today (years)

My child will go to college at (years)

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Duration of my child's college education (years)

Cost incurred on college education every year (Rs)

300,000

Please select an option

Expected rate of return on my savings (%)

8.00

Assumed inflation rate (%)

7.00

Results...
Inflation adjusted cost for college education for year 1 (Rs)

885,649

Inflation adjusted cost for college education for year 2 (Rs)

947,645

Inflation adjusted cost for college education for year 3 (Rs)

1,013,980

Inflation adjusted cost for college education for year 4 (Rs)

1,084,958

Inflation adjusted cost for college education for year 5 (Rs)

1,160,905

Need for funding your child's education (Rs)

5,093,137

Money, you need to keep aside now (Rs)

1,268,847
For investment solutions, click here!

Child plans: No Kidding

October 14, 2003 |
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Child plans have emerged as a popular choice among insurance seekers in recent
times. Simply put a child plan is designed to provide financial security to the child
incase of the insured parents demise. Also these plans are commonly used to provide for various
reasons ranging from education to marriage.

It is a common practice to receive inflows in installments from child plans towards the end of the term.
What investors would find interesting is the fact that it is possible to pay lower premiums and yet receive
higher amounts on maturity. The secret lies in taking more than one policy i.e. if the sum assured you
were looking at was Rs 100,000, then opting for five policies of Rs 20,000 each over five different tenures
will do the trick. Let us use an illustration to better understand the same.
Mr. X who is presently 31 years old wishes to opt for a child plan for his 3 year old daughter; the sum
assured is Rs 2,50,000 for a 20 year term.
Now instead of opting for a single child plan for the required sum assured that will entail high premiums,
Mr. X can opt for 5 policies of Rs 50,000 each. A smart choice would be the childrens plan offered by
HDFC Standard Life Insurance with the double benefit option. Since the proposed plan offers a single
cash flow to the policy holder on maturity, the chosen plans should be of varying tenures to bring them on
par with other child plans.
Sum Assured
(Rs)

Term
(yrs)

Child's
age

Annual premium
(Rs)

Total premium
(Rs)

50,000

16

19

3,244

51,904

50,000

17

20

3,042

51,714

50,000

18

21

2,862

51,516

50,000

19

22

2,700

51,300

50,000

20

23

2,554

51,080
257,514

Conventional child plans offer returns in 4-5 installments comprised of a percentage of the sum assured
and bonus. To better understand the working let us consider two child plans offered by insurance
companies P and L respectively.

Insurance Co. P

Insurance Co. L

Sum Assured

Rs 250,000

Sum Assured

Rs 250,000

Term

20 years

Term

20 years

Annual premium

Rs 14,004

Annual premium

Rs 13,620

Total premium

Rs 280,080

Total premium

Rs 272,400

Clearly opting for more than one policy has helped the policy holder by saving on the premium amount
paid. Another interesting feature is that with varying terms the premium amount reduces progressively
from the 16th year. Now for the other aspect, which most policy seekers are keenly interested in i.e.
returns on maturity. Since the bonus is an integral part of the maturity proceeds, they have been
computed assuming a rate of 6% for all the policies.

HDFC Life
Term (yrs)

Amt (Rs)

Co. P

Components

Amt (Rs)

Co. L

Components

Amt (Rs)

Components

NIL

NA

16

108,000

SA+Bonus

62,500

25%of SA

17

111,000

SA+Bonus

50,000

20%of SA

62,500

25%of SA

18

114,000

SA+Bonus

50,000

20%of SA

62,500

25%of SA

19

117,000

SA+Bonus

50,000

20%of SA

62,500

25%of SA

20

120,000

SA+Bonus

326,881

20%of SA+B.

362,500

25%of SA+B.

570,000

539,381

550,000

(SA-Sum Assured; B-Bonus)

(Bonus rates are indicative in nature and may vary depending on the insurance company)

The numbers say it all! Despite having paid lower premiums, policy holders can receive higher returns by
opting for more than one policy. So go ahead and get that child plan, its like having your cake and eating
it too!

Securing your childs future

May 18, 2004 |
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Childrens policies are a combination of savings and protection where the parent is
insured and the child is the immediate beneficiary. Child policies are becoming
increasingly popular, especially when viewed within the context of the rising cost of education.
Moreover the breakdown of the joint family system means that children have no financial security in case
of death of parents. The policy not only provides regular savings for the childs future needs, but also
financially secures him in the eventuality of the death of his parent (policyholder).
If you are wondering why financial planners are against child plans, here are the reasons.
1. They argue that in the first place, your child doesnt have any financial value to be insured.
Insurance is meant to mitigate financial losses on death of the policyholder. Since the child is not
earning and doesnt have any dependents, there is no need for insurance cover.
2. If you are investing the money elsewhere, say in a mutual fund scheme, you will get better
returns. In short, child plans are not worth the premium they command.
More often than not, these plans prove attractive more as investment alternatives than as plain risk
covers. Some of them balance risk compensation well with investment objectives. In general, all policies
set apart some of the premium for providing financial cover to the child from the loss of monetary
sustenance. However, most also concentrate on generating competitive returns that cater to the
education or marital needs of children on maturity. The proportion with which plans allocate resources
between the two, differentiate them in terms of investment instruments or risk covers.
What one should look at before taking child insurance?
When we discuss children policies, we are typically talking about insuring the lives of children and the
primary reason for doing that is to give them a policy at a young age, when they are healthy, when they
are young and the premiums are very low. For, the older you (the parent) get, the higher the premium per
thousand sum assured. Similarly, the older your child gets, the fewer years he gets to hold the policy,
therefore making it dearer for you to secure the same proportion of the sum assured. Therefore, if
something happens to their health even in the future, they are locked into a particular policy.
While saving for children, the sooner you start on a regular disciplined basis, the sooner you are in
position to accumulate enough money for those expensive education needs. To illustrate, more we make
a comparison between Mr X and Mr Y. Mr X takes a child plan from HDFC Standard Life Insurance when
he is 30 years of age and Mr Y takes it when he is 35. They both buy the policy on May 12, 2004, for a
term of 15 years and the mode of payment they both choose is annual.
The early bird gets the worm

Guaranteed
benefits

Non-Guaranteed Benefit

Total Maturity Benefit

Assumed Investment
Return

Assumed Investment
Return

Age
(Yrs)

Premium Date of
Maturity

Sum Assured

6% p.a.

10% p.a.

6% p.a.

10% p.a.

30

6,777

May 12, 2019

100,000

38,040

84,510

138,040

184,510

35

10,457

May 12, 2019

100,000

22,770

47,680

122,770

147,680

Invest for a objective

Face reality. Know how much you need to pay for college or to achieve any other goal. You should know
why you are buying this particular plan. Is it for higher education or marriage of your child? Choose a plan
that suits your aim. For example, if you want to fund your childs engineering degree then the money
should come when he or she is around 18 years. The maturity period of your plan should be near this
age.
Determine the beneficiary
An important decision to make while choosing a child policy is who should be the beneficiary child or
parent. The payouts and benefits depend on this criterion. Policies taken on the parent protect the child
against the death of the parent and ensure that a lump sum is available to the beneficiary (child) to meet
his/her future needs. A number of plans also go a step forward and pay a lump sum on maturity
regardless of the death benefit. Policies taken on the child are child policies and the risk on these policies
commence only after the child becomes seven. If the child dies before seven, all premiums are repaid
with or without interest as the case may be. If death occurs after seven, the full sum assured plus
bonuses are paid to the beneficiary.
Premium waiver
These days most insurers offer you a premium waiver rider. That takes off all the future payments after
the death of the parent. Also, look for useful riders like disability rider. Remember, it is imperative that the
policy continues even after your death to fulfill your objectives.
For funding education choose money back plan
If your aim is to fund your childs education, go for money back plans. These plans make lump sum
payouts at certain intervals to meet the expenses that crop up at regular intervals, say, higher studies.
They can be structured to mature when your child attains a specific age such as 18, 21 or 24 years so
that money is available to meet crucial commitments. You should ensure that these periodic intervals
match the fee due periods. If you are looking for annual mode of payment, pick a plan that gives money
annually, not after say, a gap of every five years. Usually, the proceeds get triggered in these plans from
the childs 18th birthday and the payouts can go up to 30 years.

For long-term aim, go for endowment

Traditionally and in India we still have the endowment polices where you are saving on a regular basis,
usually monthly, quarterly or annually, and these policies mature between 18, 21 and 27 years. So most
companies in the market offer these endowment plans specifically for the child's education and future
savings. Endowment plan works best if you have a specific objective in mind i.e. funding your childs
engineering degree. The plan will work because it will mature at the right time. Also, it will give you a lump
sum amount. If the policyholder dies during the policy term, a sum equal to the sum assured is paid
immediately. In some cases, benefits along with the bonuses are paid on maturity, over and above the
payout on death.
In most cases, choosing between insurance plans is like choosing between apples and oranges. No two
plans are alike and a strict comparison between premium rates across plans is inconsistent, as each plan
bundles benefits often offered as `extras' in other plans.
So before buying a child plan you should assess your requirements and select a product that is in sync
with your needs.
HDFC Standard Life, a leading life insurer, offers policies that are designed to meet the needs of your
child. To get to know more about these policies, please click here.

Time you got childish

June 1, 2004 |

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This article written by Personalfn was carried by Business India in the May 9, 2004
issue with the title Little thoughts. This article is an update on an earlier article (Is your
child a prodigy?) written by Personalfn.
Planning for your childs future has assumed some relevance mainly because of the uncertain and volatile
investment climate that we are witnessing today. Earlier parents had the comfort of investing in assured
return schemes offering 10-12% rates. Since then, these rates have halved and even then the future of
assured return schemes as they exist today is suspect. So what should parents be doing? Investing in
mutual fund plans for children is one way to alleviate interest rate blues.
Often investors are too preoccupied with investing per se and clocking a return is uppermost in their
minds. They ignore the real investment objective i.e. saving for retirement, saving to buy a house, saving
for childs education and the like. Ideally, all these must be looked at in isolation, as there is no one-sizefits-all solution. For instance, to an individual saving for retirement, there is a pension plan that has a clear
mandate to invest with the objective of helping investors save for retirement. Likewise we have children
plans/schemes that have a mandate to invest with the objective of creating wealth over the long-term for
the childs future.
To cautious parents who would think twice about surrendering their hard-earned money to a fund
manager; the explicit investment objective of a mutual fund child plan is particularly comforting. For
instance, Principal Child Benefit Fund seeks to generate capital appreciation with the aim of giving
lumpsum capital growth to the beneficiary (child) at the end of the chosen period. HDFC Childrens Gift
Fund also seeks to provide capital appreciation to the investor (the child in this case). Even more explicit
is UTI Children Career Plans investment objective of providing the child on maturity a means to meet the
cost of higher education and/or to help them in setting up a profession, practice or business or enable
them to set up a home or finance the cost of other social obligation.
From the parents perspective having an investment option that works with the sole intent of creating
wealth over the long-term for the child is a big plus. Of course, we have a gamut of diversified equity and
balanced funds that seek to provide long-term capital appreciation for their investors; but there is a subtle
difference between these funds and child plans. When a diversified equity fund or a balanced fund
declares that it wants to post long-term capital appreciation the fund manager does not really have the
liberty to make equity investments over the long-term. This is because his fund witnesses daily
redemption pressure and investors (existing as well as potential) are constantly monitoring his funds

performance. This tends to force the fund managers hand and at times he makes investments purely to
clock short-term gain to keep investors satisfied and go one up on his peers. Consequently we witness a
mismatch between the stated investment objective (of providing long-term capital appreciation) and the
actual investment approach (investing to clock short-term gains).
In an exclusive interview with Personalfn.com, Mr.Tushar Pradhan (HDFC Child Gift Fund manager)
asserts, Child plans are similar to balanced funds. However, the differentiating factor is the selection of
stocks and the churn in the portfolio. Typically the (child plan) fund manager selects companies that
display long term potential as opposed to short term upsides, which any other balanced fund is free to
exploit.
Child plans have a lock-in period (minimum 3 years in most cases). If the investor (parent) wishes to exit
before that, he will incur a load (as a percentage of his investments), which is a deterring factor for most
investors. The child plan fund manager is able to plan his investments relatively better because he has a
fairly good idea about the redemptions his fund is likely to witness. This affords him a lot of freedom while
investing and he can take some serious bets that may be unrewarding over the short term, but can really
spruce up growth over the long-term. So there is harmony in what he seeks to do (provide long-term
capital growth) and his actual investment style (long-term stock bets).
This point is well highlighted by Mr. Tushar Pradhan, the child plan fund manager endeavors to narrow
his investible universe only to such companies that display superior opportunities for growth in the long
term and have capable management that trade at reasonable valuations. While handling a child plan
extra care is taken to ensure that the churn in the portfolio is kept low and very large volatility is avoided.
Most parents aspire to see an NAV that is slowly but steadily growing as opposed to a sharply volatile
NAV.
But is this actually translated into action? Do child plans actually churn lower and witness lower volatility
vis--vis balanced funds? We have taken a sample of four leading child plans in the country with a
minimum 3-Yr track record and have compared them to balanced funds from the same fund houses.
Returns at a comfortable pace
Child Plans

NAV
(Rs)

3-M
(%)

1-Yr
(%)

3-Yr
(%)

Inc.
(%)

SD
(%)

SR
(%)

ASSETS
(Rs m)

EQUITY
(%)

PRINCIPAL CHILD BENEFIT PLAN

26.22

7.2

66.9

25.1

16.7

3.97

0.39

163

60.3

HDFC CHILDRENS GIFT FUND (IP)

17.98

(0.0)

51.5

22.2

20.7

4.36

0.32

344

57.1

TATA YOUNG CITIZENS FUND

12.96

2.4

54.0

17.9

15.6

3.88

0.36

956

49.2

UTI CHILDRENS CAREER PLAN

12.29

1.7

32.8

16.4

16.4

2.50

0.40

12,102

40.8

(NAV-related info sourced from Credence Analytics. NAVs as on May 3, 2004. All growth over 1-Yr is compounded annualised)

In our sample, Principal Child Benefit Fund leads the 3-Yr ranking, followed by HDFC Child Gift Fund and
Tata Young Citizens Fund. Principal Child Benefit has even outperformed Principals Balanced Fund.
Likewise, HDFC Child Gift has done marginally better than HDFC Balanced. Performances of child plans
appear particularly attractive when you consider that they have come at relatively lower risk. Only
Principal Child Benefit Fund has an equity component exceeding 60%. Particularly noteworthy is the
lower volatility in child plans vis--vis balanced funds. Principal Child Benefit and HDFC Child Gift have
seen lower volatility than their respective balanced fund counterparts. And when you combine this with
superior performance, you have two child plans that have performed better with lower volatility than their
own balanced funds. This clinches the investment argument that a lock-in enables the fund manager to
invest the way he wants to, rather than the way he has to. From the investors perspective, a lock-in
instills discipline and gives him that much more chance of clocking superior growth at lower risk.
Higher returns come at a price
Balanced Funds

NAV
(Rs)

3-M
(%)

1-Yr
(%)

3-Yr
(%)

Inc.
(%)

SD
(%)

SR
(%)

ASSETS
(Rs m)

EQUITY
(%)

HDFC PRUDENCE (G)

46.97

5.0

79.5

38.9

20.3

4.55

0.56

6,429

62.7

TATA BALANCE FUND (A)

22.69

2.8

78.0

24.0

14.9

5.18

0.39

979

69.0

HDFC BALANCED FUND (G)

16.88

3.5

62.2

22.0

15.8

4.94

0.31

1,041

63.0

UTI US-1995 (G)

30.44

4.3

61.1

23.0

19.1

4.19

0.33

2,295

61.3

PRINCIPAL BALANCED (G)

16.18

3.9

59.6

21.1

15.0

4.04

0.40

4,052

67.1

(NAV-related info sourced from Credence Analytics. NAVs as on May 3, 2004. All growth over 1-Yr is compounded annualised)

What you need to look at before investing in a child plan:

1. More equities should not be looked at with apprehension even if you are risk-averse. Remember
this is an investment for your child and not for you. In fact, for a child, a higher equity component
is better given that he/she has age on her side.
2. The child plans track record is important. Performance of other equity/balanced funds from the
same asset management company (AMC) is a pointer towards the funds competence in
managing the child plan. And when you look at the child plans performance, look at long term i.e.
3-Yr/5-Yr not 6-Mth/1-Yr.
3. The child plans corpus is not necessarily an important factor. Remember child plans are retail
products so even if the funds net assets are small, you can safely assume most investors are
retail just like you, which is unlikely to have a significant bearing on the performance.
4. While comparing child plans across AMCs, make sure you are comparing apples to apples.
Across the board, child plans have varying equity components, which is what gives a push to the

returns of the plan at the end of the day. So make sure you are comparing returns of child plans
with the same equity component so as to make an intelligent decision.
While mutual fund investing was always meant to be for the long-term, greed and fear force investors to
realign their investment objectives at regular intervals. This in turn forces fund managers to realign their
investments. With the result, the return generated by the fund assumes more importance than it should,
and the end objective (house, car, childs education) is forgotten. With the lock-in in child plans, the
discipline is enforced and investors are compelled to look at the big picture.

Is your child a prodigy?

April 16, 2004 |
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If he isnt, we suggest you make alternative arrangements to ensure his future is

nevertheless secure. Investing in a mutual fund child plan is one way.
Often investors are too preoccupied with the objective of clocking a return and close their eyes to the
ultimate objective i.e. saving for retirement, for a house, for the childs education and the like. Each of
these requires a different investment mindset and fortunately for the investor more often than not, there
are investment avenues that cater distinctly to most of these objectives. For instance, to an individual
planning for retirement, you have mutual fund pension plans with a clear mandate to invest with the
objective of helping investors save for retirement. Likewise we have children plans/schemes that have a
mandate to invest with the objective of creating wealth over the long-term for the childs education.
Investing for the future
Child Plans

NAV (Rs)

1-Mth

6-Mth

1-Yr

3-Yr

Incep.

HDFC CHILD INVEST. PLAN

18.6

4.0%

14.9%

57.8%

25.3%

22.4%

PRINCIPAL CHILD BENEFIT

26.1

6.7%

16.0%

62.4%

24.1%

16.5%

TATA YOUNG CITIZEN

13.3

4.3%

14.5%

60.7%

21.7%

16.1%

PRUICICI CHILD CARE

20.2

4.6%

17.1%

83.6%

NA

32.0%

MAGNUM CHILD PLAN

13.5

1.9%

6.7%

21.2%

NA

14.6%

(NAV-related info as on April 13, 2004. All growth over 1-Yr is compounded annualised)

Of particular interest to the cautious investor is the explicit investment objective of a mutual fund child
plan. For instance, Principal Child Benefit Fund seeks to generate capital appreciation with the aim of
giving lumpsum capital growth to the beneficiary (child) at the end of the chosen period. HDFC Childrens
Gift Fund also seeks to provide capital appreciation to the investor (the child in this case). Even more
explicit is UTI Children Career Plans investment objective of providing the child on maturity a means to
meet the cost of higher education and/or to help them in setting up a profession, practice or business or
enable them to set up a home or finance the cost of other social obligation.

From the parents perspective having an investment option that works with the sole intent of creating
wealth over the long-term for the child can be very comforting. While to many it may appear that providing
long term capital appreciation is a no-brainer because even the most incompetent fund seeks to do that,
there is a subtle difference. When a diversified equity fund or a balanced fund declares that it wants to
post long-term capital appreciation the fund manager does not really have the liberty to make equity
investments over the long-term. This is because his fund witnesses daily redemption pressure and
investors (existing as well as potential) are constantly monitoring his funds performance. This tends to
force the fund managers hand and at times he makes investments purely to clock short-term gain to keep
investors satisfied and go one up on his peers. Consequently we witness a mismatch between the stated
investment objective (of providing long-term capital appreciation) and the actual investment approach
(investing to clock short-term gains).
Now lets understand why this is never a predicament for the child plan fund manager. Child plans have a
lock-in period (minimum 3 years in most cases). If the investor (parent) wishes to exit before that, he will
incur a load (as a percentage of his investments), which is a deterring factor for most investors. The child
plan fund managers is able to plan his investments better because he knows in advance the redemptions
his fund has to meet on a particular day. This affords him a lot of freedom while investing and he can take
some serious bets that may be unrewarding over the short term, but can really spruce up growth over the
long-term. So there is harmony in what he seeks to do (provide long-term capital growth) and his actual
investment style (long-term stock bets).
What you need to look at before investing in a child plan:
1. More equities should not be looked at with apprehension even if you are risk-averse. Remember
this is an investment for your child and not for you. In fact, for a child, a higher equity component
is better given that he/she has age on her side.
2. The child plans track record is important. Performance of other equity/balanced funds from the
same asset management company (AMC) is a pointer towards the funds competence in
managing the child plan. And when you look at the child plans performance, look at long term
3-Yr/5-Yr not 6-Mth/1-Yr.
3. The child plans corpus is not necessarily an important factor. Remember child plans are retail
products so even if the funds net assets are small, you can safely assume most investors are
retail just like you, which is unlikely to have a significant bearing on the performance.
4. While comparing child plans across AMCs, make sure you are comparing apples to apples.
Across the board, child plans have varying equity components, which is what gives a push to the

returns of the plan at the end of the day. So make sure you are comparing returns of child plans
with the same equity component so as to make an intelligent decision.
While mutual fund investing was always meant to be for the long-term, greed and fear force investors to
realign their investment objectives at regular intervals. This in turn forces fund managers to realign their
investments. With the result, the return generated by the fund assumes more importance than it should,
and the end objective (house, car, childs education) is forgotten. With the lock-in in child plans, the
discipline is enforced and investors are compelled to look at the big picture.