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Financial products for kids. Really?

india Updated: Jan 13, 2013 20:36 IST

If you love your children, buy our product. As product pitches go, it's simple, direct — and manipulative. Unfortunately, it is also far too widely used. While I have nothing to say on the merit or otherwise of health drinks or educational aids or even cars (!) that use this tack, financial products are another matter altogether.

Products that use the children ploy to sell have a long history in India. Insurance as well as mutual fund products that have the words ‘child’ or ‘children’ in their name have been around for so long that many people assume that there is a specific class of products that provide some unique advantage to their children’s
future that other products do not.

At Value Research, we get a substantial flow of emails from worried parents who are looking for the best possible ‘child plan.’ With years of background exposure to the phrase, they just assume that somewhat like a tax plan, a child plan is an integral part of personal finance. Guess what! ‘Child plan’ is actually not a financial term at all, but a marketing one.

There is nothing distinctive about a so-called child plan. For example, one of the largest ‘child’ mutual funds was for years just a vanilla balanced fund of mediocre performance. The pitch was that you should invest in it and use the money for your child’s college fees. But the returns that such funds produce are not made up of special money that designed to pay college fees. It is just normal money!

However, if the loving parents had chosen better performing funds, they would have more of that normal money, and that would probably be of some real help when it comes to paying actual fees.

Insurance products too play a similar trick. There's nothing distinctive about the products themselves. You can pitch a product by saying that if you die, your child's college fees can be paid out of the benefits. But that is true of the proceeds of ANY insurance policy.

Don’t be gullible. Think it through.