Child plans are not an education fund

They're sold at the bank desk as one. The brochure may look interesting, but this article tells you what it leaves out, and how a real education fund is built.

A two-in-one deal

Everyone loves a combo offer. A 35-year-old parent is offered a child plan at ₹1 lakh a year, for 20 years.

The brochure shows that this one plan covers both investment and insurance. Your money goes into investments, with a waiver on top: if the parent dies, the insurer pays the remaining premiums.

That sounds like a bonus benefit. As interesting as it may seem, the fine print tells a very different story.

Part 1: The investment

What most people don't realise is that after all the fees and cuts, your investment in a child plan earns only about 6–8% a year.

That's barely ahead of an FD or inflation. SBI pays 6.05% on a five-year deposit, and retail inflation was 4.82% in August 2026.

Invested separately, the same money can earn around 10–12%, roughly what the market has made on average.

Part 2: The insurance

For the ₹1 lakh you pay each year, the plan gives you ₹10 lakh of cover. A separate term plan gives you ten times that.

Same ₹1 lakh, bought separately

Now spend the same ₹1 lakh a year on the two parts: under ₹15,000 on a 20-year, ₹1 crore term plan, and ₹85,000 invested yourself.

Invested directly, the money keeps what the market makes, less a small fund fee. Over 10-year periods since 2005, the Nifty 50's median was 12.7% a year.

Step 1

Give the goal a number and a timeline

It starts with the degree, not a product. Work out what the education costs today, then add inflation for every year until the goal.

That's the goal: ₹1 crore by 2039. Even at 8%, the child plan's ₹8,333 a month reaches about ₹22.4 lakh, under a quarter of it.

Step 2

Put the money in the right assets

The right asset depends on how far away the goal is.

Since 2005, anyone who held the Nifty 50 for one year lost money 18.2% of the time. Anyone who held it for seven years never did. The worst 13-year stretch still made 6.61% a year.

Based on how much time you have, pick the asset that gives you what you need on the day you take the money out.

Step 3

Move to safer assets as the date gets close

If you started in equity, you can't leave it there as the goal nears. Equity comes with volatility and market risk, and close to the date there's no time to wait out a fall.

In 2008 the Nifty 50 fell 59.5% in ten months, and took 32.8 months to get back. A family with fees due in 2009 couldn't wait that long.

Liquid funds hold only debt that matures within 91 days, so they barely move. They earn close to short-term interest rates, with RBI's repo rate at 5.25%. Less than equity, but they can't fall 55% in a year.

Move your assets as time passes, to make the most of both.

Step 4

Insure the parent

The fund only gets built if the parent is around to keep investing. That's the one job for insurance.

A ₹1 crore term plan does it for under ₹15,000 a year. If the parent dies, that payout, invested, more than covers the ₹1 crore goal. It's what protects the wealth being built, and it should always be taken on the parent.