Wednesday, 29 February 2012

Simple Investment Plan : Child Plan

Here is short story. Story of Dumb Dad and Dashing Mommy. 

grant cochrane

“Deepak” the Dumb Dad and “Deepthi” the Dashing Mommy were celebrating their 2nd birthday of their daughter “Divya”. Divya on her birthday asked Mommy and Dad a question.  Is my future Secured?  Have you taken care of future?
Probably it is just TV advertisement influence behind this question. Dad was quick enough to say, yes my Dear, Your Dad has taken care of your future. He quickly grabbed the laptop and showed all the investments he has done for her future.  He showed all the ad’s on laptop where he invested money.
“Smart Kid”, “Future Kid”, “Lively Kid”, “Jolly Kid”.  Divya quickly hugged her dad and said “My Dad is smartest”.  Divya was able to correlate these plans as she had often seen these ads on TV.

Deepak Turned to Divya and Said, He learnt from “Bhalla” uncle that diversification is the key for any investment and that is the reason why he opted for 4 child insurance instead of one.  50 K in each of these child plan per year.  He continued and said, look at the benefits of this plan in case of my untimely death.
·    Sum assured would be paid.
·    Wave off on future premium till maturity
·    Policy benefit continues. This means Divya can still get   some amount at various stages during the tenure of the policy.
Divya turned to Mommy and asked, what is that you have for me?  Mommy handed over a sealed envelope to Divya and said, for now this is all I have for you. You are to open this envelope on your 25th Birthday. In case your Mommy happen to die before you turn 25, open the envelope and see what I have for you. Mommy Continued and said “O” I did buy a term plan for myself on your last year birthday.

Hearing this, Divya said, you mean nothing for me?  Mommy replied, probably nothing for now. This did not excite Divya however she was still in jolly mood for all that her Dad did for her.
Let us move the clock further and celebrate Divya’s 25th Year Birthday. Divya opens up the envelope that had Mommy’s write up for Divya.
Here it goes:
Good products need no advertisement. Child plan are nothing but endowment plan in disguise that give very low returns and are unable to beat inflation. Your future was always on my minds and I wanted to the best I could. Here is what I have for you.
Your Dad is the nominee for the term plan of One Crore. I have detailed him how I wish to utilize this money for your future and I am sure your Dad will do accordingly. Every Year I paid approximately 25 K for this Policy. 
75 K every year was being invested in safest product PPF. This will continue till you are 25 years. One Lakh is being invested in form of SIP in couple of Diversified Mutual funds for 25 years.

Your Mommy loves you as much as your Dad does.  Mommy too invested 2 Lakh per year for your future. The only difference is your Dad invested in child plan and I did it something that did not carry the certificate of “Child”.

Yours Loving Mommy

Both Dumb Dad and Mommy invested 2 Lakh per/year. Dumb Dad opted for various Children policies and Dashing Mommy went ahead with Term plan +MF+PPF Route. Let us see how they stand today
Dumb Dad’s Investment –
Assuming that Dad has selected best Non Unit Linked Child plans for Divya. He would end up getting a sum assurance of 50 Lakh. There are some guaranteed returns at various stages during the policy tenure. Finally there would be some Maturity Bonus.
Returns after Years
% of sum assumed(30 Lakh)
Return amount

Total Guaranteed Returns

Dumb Dad’s investments returned 60 LAKH Rupees (assuming 10 Lakh as final bonus)
Dashing Mom’s Investment-

Interest Rate
Maturity Amount.
Mutual Fund
 Term Plan


Dashing Mom’s investments returned 3.39 Crore Rupees.
At 25 Divya was quite old enough to understand the difference in returns. She understood both Mommy and Dad loved her equally. Their investment style differed. Dad got carried away emotionally where as Mommy was realistic and practical.
Final Take away:
·   Don’t get carried away by tag “child” or “children” plan.  Children plan are nothing but endowment plan in disguise.
·   Planning for Child need not be different than doing it for  Adults. Invest in right product. Have the discipline to stay invested for long term.A plan is plan. It cannot be different for child plan.

Note: This is cooked up story. All that the author wants to convey is Dont get be emotional when you choose investment product for your child.

Do you think the Mommy was really smart? Do you have a better plan?


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