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Insurance

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Generally, you will find people opting for a child's insurance policy in such cases. However, this is not a very good choice.

The returns from an insurance policy are usually poor as compared to pure investment products as they have higher charge-structure. Second, they offer very little diversification. Third, the flexibility to change is also quite low. Therefore, the normal moneyback, endowment, or ULIP type of an insurance policy is preferably avoidable.

To cover for any unfortunate eventuality, you should ideally be buying a term insurance policy. This takes care of the protection aspect.

To get good returns with tax saving, presently the PPF (8% assured and tax free returns, 15-year lock-in) and ELSS funds (100% equity, 3-year lock-in) are the best tax saving products.

Since your time horizon is long and assuming you have a reasonable risk appetite, you can invest about 50% money each in PPF and ELSS. This will give you tax saving under Section 80C. Further, it will also help you to create wealth for your child's higher education 16-18 years later.

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