FINANCIAL GUIDANCE - Invest Through SIP

Q.I have two sons, one 13 years of age and other 9-year-old. I want to make a planning for them to earn pension. Please advise me about the plans available for this purpose. I can make a provision of Rs 25,000 per annum for them. I do not  want to invest in ULIP plans. Please give me proper guidance.
                                                                                                           -    Atul Saoji, On email
A.Atul, it is nice that you would like to save for them so that they can earn a pension from it in their later years. Generally pension plans are run by life insurance companies. You can make a monthly saving, which accumulates in a choice of plans from conservative (bonds) to aggressive (only equities). On reaching the vesting age, the owner can commute one third of the amount (that is take back) and use the balance two-thirds to buy an annuity in either the same company or any other insurance company running an annuity scheme. The annuity scheme promises to pay the holder a regular monthly sum of money till the death of the holder, and to the spouse there-after, if we chose the scheme as such. The rate at which the sum is paid is determined at the time of buying the annuity and not now. Currently LIC schemes pay out anywhere between 5.6 per cent pa  and 9.6 per cent pa depending on the scheme that is chosen. Investing Rs.25,000 per annum (or Rs.2083 per month) will likely grow to a sum of Rs.15 lakh over 20 years, if invested in a balanced portfolio of 50 per cent debt and 50 per cent equity. If invested in 100 per cent equity, it could grow to around Rs.20 lakh. What I would suggest is,1. Invest through a Systematic Investment Plan in the desired portfolio.2.  Buy a term insurance policy for Rs.15 lakh or Rs.20 lakh with your sons as the beneficiaries, so that they will receive the sum assured in case you die before you save enough for the annuity! The amount received can be used to buy an annuity by your sons.3. After the sum is accumulated, the amount may be used to buy an annuity with the best provider at the time.
If you desire an annuity for yourself and your spouse, then schemes such as Jeevan Nidhi from LIC are good, where you can start saving for the annuity, and if you die earlier than the desired vesting age, your spouse/beneficiary will receive the sum assured (along with bonuses etc.) with which she can buy an annuity.