Last week, Kiran Telang wrote a very comprehensive review of ICICI Prudential’s SmartKid Child Plan over at The Financial Literates. I’ve heard about this plan earlier but didn’t bother to go into details because usually these type of plans don’t have a very high rate of return and they sell more on their emotional appeal rather than their financial return.
Kiran’s analysis shows that this is true for this particular plan as well, as the IRR for the product comes out between 3.35% – 6.3%. The article and the comments on it reminded me of a conversation that I had with Santosh Navlani of MoneySights a few months ago on Twitter.
He made the excellent point then that a lot of these plans are packaged as solutions for children’s education or something else like that and come with a long lock-in period, and a lot of people get swayed by the indicative rates that are shown by illustrations on these product. I think a lot of people who buy these products later find out that it’s not what they thought it to be. Bemoneyaware documented the whole thing and has a great post here.
Since Santosh made that point, I’ve been a lot more aware of these type of questions and products, and the big lesson here is that there really are no financial solutions that can be bought right now.
Your best bet is to not get swayed by advertising and focus on just the numbers (easier said than done) and you will always be able to create solutions yourself without needing any products to do that for you, and in any case, there aren’t many decent solutions (if any?) that exist today so the time spent looking for products that fit your need is better spent defining your needs and then combining a mix of simple, easy to understand products that give you what you want and don’t surprise you later on.