Will you liquidate an investment if you need the money? You might, if
you are faced with a cash crunch, but if the investment has the words 'child',
'education' or 'marriage' in the name, chances are you will think twice and
then avoid withdrawing the money.
"When you invest in an ordinary fund, there is a greater
probability of the money being spent for other needs. However, when you invest
in a child-specific product, it is more likely to be used for that
purpose," says financial planner Vishal Dhawan.
That, perhaps, is the only advantage that
child-specific mutual funds offer to investors. Otherwise, these
funds are like any other fund in the category and carry the same risks.
When it comes to child
insurance plans, young parents are
forever in the cross hairs of salesmen masquerading as investment advisers. The
first thing they are offered is a traditional insurance policy aimed
at "securing the long-term needs of the child". If you don't fall for
the marketing gimmick, they will offer a Ulip which will "ensure that all
goals are met even if the parent is not around".
The emotional
appeal is so strong that the parent quickly signs on the dotted line. However,
financial experts feel that insurance plans are not the best way to invest.
Another question that parents tend to ask is
whether it is advisable to buy an investment in the child's name. Financial
advisers warn against doing so. "Your child will receive a very big sum of
money at a time when she may not necessarily be mature enough to decide how to
spend it," says Dhawan.
On the other hand, if the product is in your name
(with your spouse as the nominee), you retain control over how the money is to
be spent.
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