Last Updated on Sep 28, 2023 by Harsh*t Singh
Every parent wants to secure their child’s future. And with the increasing cost of education and living in India, it is wise to start the investing journey when the child is young. One of the best ways to secure your child’s future is through children’s mutual funds. Mutual fund schemes for children, commonly known as Children Gift Funds, provide returns that can offer financial benefits to your children in meeting expenses such as future education and marriage needs. In this article, let’s explore mutual funds for children in detail, along with their advantages and limitations, a list of the best mutual fund plans for children, and more.
Table of Contents
What are children’s funds?
A children’s fund is an open-ended mutual fund aimed at child-specific goals, like meeting educational expenses and healthcare. The fund usually has a mandatory lock-in period of 5 yr. It can be extended until the child becomes a major.
Children’s funds can be considered a good solution-oriented plan to tackle the rising cost of education and other expenses. Moreover, investors cannot prematurely withdraw the money invested in the fund, making it an idle long-term investment.
Best mutual funds for children
| Mutual fund name | AUM (Rs. in cr.) | CAGR 3Y (%) | CAGR 5Y (%) | Expense Ratio (%) |
| Tata Young Citizen Fund | 297.74 | 24.88 | 15.46 | 2.17 |
| ICICI Pru Child Care Fund-Gift Plan | 994.71 | 20.49 | 11.98 | 1.54 |
| Aditya Birla SL Bal Bhavishya Yojna | 789.69 | 16.64 | 0.00 | 0.67 |
| LIC MF Children’s Gift Fund | 14.05 | 16.64 | 11.31 | 1.85 |
| Axis Children’s Gift Fund-No Lock in | 758.39 | 16.58 | 12.44 | 0.95 |
| Axis Children’s Gift Fund-Compulsory Lock in | 758.39 | 16.36 | 12.27 | 0.95 |
| SBI Magnum Children’s Benefit Fund-Savings Plan | 97.94 | 15.01 | 10.55 | 0.81 |
Note: The data is from 28th September 2023 and sorted using Tickertape Mutual Fund Screener using the below-mentioned parameters:
- Category > Others > Solution Oriented – Children’s Fund
- Plan: Growth (default)
- CAGR 5-yr (Sort from high to low)
Details of the best mutual funds for children
Tata Young Citizen Fund
It is an open-ended balanced scheme for children aged between 3 months and 18 yrs. The risk profile for this fund is high.
Investment in this fund can be made via Systematic Investment Plan (SIP) with an amount of as low as Rs. 150 on a daily, weekly, and monthly basis. As of 28th September 2023, the current Net Asset Value (NAV) for the fund is Rs. 53.68, and its 5-yr CAGR is 15.46%.
ICICI Pru Child Care Fund-Gift Plan
It is an open-ended mid-size fund with Assets Under Management (AUM) of Rs. 994.71 cr. The risk profile of this scheme is very high. Investment in this fund can be made via SIP with an amount of as low as Rs. 500 on a daily, weekly, and monthly basis. As of 28th September 2023, the current NAV for the fund is Rs. 249.37, and its 5-yr CAGR is 11.98%.
Aditya Birla SL Bal Bhavishya Yojna
This mutual fund is especially designed to give better returns over the long-term. The NAV of this fund is Rs. 16.98 and the minimum lock-in period is 5 yrs.
LIC MF Children’s Gift Fund
It is an open-ended, small-size fund with an AUM of Rs. 14.05 cr. The fund has a very high-risk profile. Investment can be made via a minimum SIP of Rs. 1,000. As of 28th September 2023, the current NAV for the fund is Rs. 29.39, and its 5-yr CAGR is 11.31%.
Axis Children’s Gift Fund-No Lock in
It is an open-ended mid-size fund with a high-risk profile. Investment in this scheme can be made via SIP of a minimum of Rs. 1,000. As of 28th September 2023, the current NAV of the fund is Rs. 23.68, and its 5-yr CAGR is 12.44%.
Axis Children’s Gift Fund-Compulsory Lock in
It is an open-ended mid-size fund with a lock-in period of 5 yrs. The risk profile of this fund is high. Investment in this scheme can be made via SIP of a minimum of Rs. 1,000. As of 28th September 2023, the current NAV of the fund is Rs. 23.31, and its 5-yr CAGR is 12.27%.
SBI Magnum Children’s Benefit Fund-Savings Plan
It is a small-size fund with an AUM of Rs. 97.94 cr. The fund has a moderately high-risk profile. Investment can be made via a minimum SIP of Rs. 500. As of 28th September 2023, the current NAV for the fund is Rs. 94.75, and its 5-yr CAGR is 10.55%.
Why should you consider investing in mutual funds to secure your child’s future?
Bank Fixed Deposits, Unit Linked Insurance Plans (ULIPs), endowment plans and other traditional saving instruments offer a low-interest rate. Plus, the interest received on bank deposits is taxable according to the investor’s income tax bucket, and post-tax and inflation-adjusted returns are essentially non-existent.
Considering all these in mind, investing in mutual funds seems to be a great way to start saving for your child’s future. These funds help you build a diversified portfolio, allowing you to generate long-term returns.
Additionally, in today’s rising inflation and economic uncertainty, investing in avenues such as mutual funds that have the potential to beat inflation is increasingly important.
Advantages of investing in children’s funds
Goal-based asset allocation: Children’s plan allows parents to allot different funds based on the goals like schooling, higher education, healthcare needs, marriage, etc. This makes the investment portfolio well-segregated. Additionally, these funds allow parents to choose a suitable asset allocation based on their risk appetite and budget.
Tax benefits: Under Section 80C of the Income Tax Act, 1961, investments made in children’s plans up to Rs. 1,50,000 per year are eligible for tax exemption. Additionally, Section 10 (32) of the Income Tax Act 1961 allows for an annual exemption of Rs. 1,500 per child if the interest income exceeds Rs. 6,500 annually. Parents of children with disabilities can also qualify for extra tax benefits if they apply for children’s funds. Finally, the indexation benefit can result in lower taxes payable during redemption.
Lock-in period: Most mutual funds for children have a lock-in period of 5-yrs with a possibility of increasing it till the child attains maturity, i.e. 18 yrs. A long-term lock-in period allows funds to accumulate and helps in meeting the goal.
Professional management of the fund: Professional fund managers are responsible for managing children’s mutual funds, which means that investors with limited market knowledge can still invest in the top children’s mutual funds. As a result, investors can expect better returns.
Limitations of Investing in Children’s Funds
Though the advantages of investing in children’s funds seem promising, there are a few limitations associated with them as well. Let’s have a quick look at them.
- Exit load: Mutual funds for children have a minimum lock-in period of 5 yrs. However, premature withdrawals are allowed as well, which comes with a high penalty. It is the exit load which can go up to 4%. Therefore, it is always wise to check the exit load details of the fund you are interested in.
- Volatility: Mutual funds are considered one of the highly volatile options. Well, it also depends on the asset allocation. For instance, equity mutual funds are more volatile than debt mutual funds. Hence, considering the volatility factor of the fund before investing in it sounds like a wise choice.
Who should Invest in Children’s Funds?
- Investors who want to secure their child’s future or save up for their education, healthcare, and other essential needs
- Parents looking to save tax
- Investors who want to invest in the long-term
- Investors looking for the flexibility of a lock-in period
Are children mutual funds balanced funds or hybrid funds?
Children’s gift funds or mutual funds invest in both equity and debts. Hence, they can be classified as balanced funds or hybrid funds.
For hybrid funds, there are two classifications: hybrid equity-oriented mutual funds, which invest 60% or more in equity, and hybrid debt-oriented mutual funds, which invest 60% or more in debt products.
Children’s mutual funds Vs Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is one of the popular government schemes for a girl child. Let’s explore the differences and similarities between children mutual funds and Sukanya Samriddhi Yojana
| Parameter | Children mutual funds | Sukanya Samriddhi Yojana |
| Eligibility | The account can be for a girl or boy child | The account must only be in the name of a girl child |
| Age limit | No minimum age requirement. However, the maximum age limit is 18 yrs. | The minimum age requirement is three months. The maximum age limit is 10 yrs. |
| Number of accounts | No restriction on the number of accounts that can be opened. | A maximum of two accounts can be opened for a family with two or more daughters. |
| Who manages the account | Parents or legal guardians | Parents or legal guardians till the girl child turns 18 yrs old. Post that, she can take control of the account. |
| Returns | No fixed interest rate as it depends on market fluctuations. | Fixed – currently, it is 7.6% per annum. |
| Investment limit | No limit | Rs. 1.5 lakh per year |
| Risk | Its dependency on market fluctuations makes it riskier than Sukanya Samriddhi Yojana. | Risk-free as sovereign guarantees back the scheme |
| Lock-in period | Usually, it is a minimum of 5 yrs or until the child turns 18 yrs, whichever is earlier. | 21 yrs from the date of opening the account |
| Premature withdrawal | Allowed, but exit load can increase up to 4%. | Allowed in case the child dies, is no longer a citizen of India, or facing difficulties for survival like in the case of a parent or guardian. |
| Maintenance cost | The AMC charges a fee called expense ratio every year. | No maintenance cost. |
Conclusion
Children’s mutual funds are one of the best investment avenues when it comes to future security and tax savings. Tickertape Mutual Fund Screener helps you in deciding the best mutual fund for your portfolio. Additionally, with our new Mutual Fund Portfolio feature, you can fetch all your mutual funds holdings in one place, get their detailed overview, analyse your top gainers and losers, and download your data for more analysis. Read more about it here and explore the Portfolio now! Happy Investing!
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I am a finance enthusiast who loves exploring the world of money through my lens. I’ve been dedicated to building systems that work and curating content that helps people learn.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
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As a financial expert in investment strategies and mutual funds, I have hands-on experience and a comprehensive understanding of the dynamics in the world of finance. I stay updated with market trends, regulatory changes, and various investment vehicles, allowing me to provide comprehensive insights into different investment options, including mutual funds.
Now, delving into the concepts used in the article about children's mutual funds:
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Mutual Funds: These are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities managed by professional fund managers.
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Children’s Mutual Funds: Specifically designed mutual fund schemes aimed at meeting child-specific financial goals like education expenses, healthcare, or marriage. They typically come with a mandatory lock-in period.
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Asset Under Management (AUM): It refers to the total market value of assets managed by a financial institution or investment company on behalf of investors.
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Net Asset Value (NAV): The per-share market value of a mutual fund, calculated by dividing the total value of all the securities in the fund's portfolio by the number of outstanding shares.
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Systematic Investment Plan (SIP): A method of investing a fixed amount regularly in a mutual fund at predefined intervals.
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CAGR (Compound Annual Growth Rate): The rate of return that would be required for an investment to grow from its initial balance to its ending balance, assuming the profits were reinvested at the end of each period.
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Risk Profile: It indicates the level of risk associated with a particular investment. Higher risk investments usually have the potential for higher returns but also involve greater volatility.
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Lock-in Period: Refers to the duration for which investors cannot redeem or withdraw their investments without facing penalties or restrictions.
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Exit Load: A fee charged by mutual funds when investors redeem their units before the specified lock-in period.
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Tax Benefits: Certain investments in children's mutual funds may qualify for tax exemptions under Section 80C of the Income Tax Act, providing benefits to investors.
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Hybrid Funds: Mutual funds that invest in a mix of asset classes like equity and debt, providing diversification and balancing risk and return.
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Sukanya Samriddhi Yojana: A government scheme in India aimed at promoting the welfare of the girl child by providing a means to save for her future education and marriage expenses.
Understanding these concepts is crucial for making informed decisions about investing in children's mutual funds or any other financial instruments, aligning investments with specific goals while considering risk profiles and tax implications.
