K. ARAVIND
Although there are no significant differences in character or gain, some investment products differ from similar products in terms of their purpose. An example is Mutual Funds’ Equity Linked Savings Plans (ELSS). The content of the portfolio is similar to the diversified funds that ELSS invests in stocks. At the same time, they differ based on purpose.
Investing in ELSS can save you income tax. As it is a tax saving plan, it can be withdrawn only after the mandatory deposit period. Diversified funds can be opted for by those who do not have such a goal when investing in ELSS with the aim of saving tax.
Here the difference in the nature of the products is very clear. But in the case of some products, the difference is only in the name. The only difference is the psychological ‘impact’ that the name creates. An example is an investment product called Child Plans.
Most people do not hesitate to withdraw their investment for cash when an emergency arises. There is a justification that investments are for such purposes. But what if the investment is in your children’s name? Their future goals such as education and marriage will come to mind. And so an investor is reluctant to withdraw the investment. But there should be no hesitation in withdrawing investments made, especially in any of these categories.
This is the only difference between a child’s investment plan and a typical investment plan called Child Plans. Care may be taken to invest consistently in Child Plans and avoid intermittent withdrawals. This zeal may not be necessary in the case of ordinary investments. Additionally, Child Plans do not differ significantly in content or nature from regular investment plans.
The same is true with the child plans of mutual funds and the child plans of insurance companies. Apart from having the ‘flavor’ of child plans, these are no different from other plans that are similar in content. Take, for example, the child plans of mutual funds. There are child plans that invest in stocks in different proportions. But these are no better than other funds investing in similar ratios. Those who are determined to make a long-term investment, even if it is not called a child plan, can choose hybrid funds or equity diversified funds from mutual funds depending on their risk willingness.
The situation is no different when it comes to child insurance plans. Not just that. Since it is not a scientific method to choose insurance products for investment, it is advisable to take out a term insurance policy in your own name and then invest in mutual funds or fixed income sources for your children according to risks.
At the same time, some investment schemes that are linked to the investment objective in name are excellent. Sukanya Samridhi Yojana is an example of an investment scheme that parents can start in the name of girls 10 years of age or below. The scheme also features tax relief and higher interest rates as compared to other fixed deposit schemes. At present, the interest rate is 7.6 per cent. This is a high rate of return on bank fixed deposits of less than six per cent. In addition to the tax deduction under Income Tax Act 80 (c) for investments in Sukanya Samridhi Yojana, the benefit of withdrawal of investment after maturity is tax free. The compulsory deposit period is till the girl reaches the age of 21.
The National Pension Scheme (NPS) is a similarly targeted investment scheme. This is the best plan for those who are currently targeting retirement pension income. Under Section 80CCD (1B) of the Income Tax Act, investments up to Rs. While there are investment schemes like NPS, there are many pension schemes in the market that can be confusing to investors. NPS is one of the best pension schemes.
