Last Updated on Nov 18, 2024 by Anjali Chourasiya
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 (2024)
| Name | AUM (Rs. in cr.) | CAGR 3Y (%) | Expense Ratio (%) | CAGR 5Y (%) |
| Tata Young Citizen Fund | 367.04 | 11.74 | 1.89 | 18.82 |
| ICICI Pru Child Care Fund-Gift Plan | 1,314.85 | 15.35 | 1.51 | 17.35 |
| Aditya Birla SL Bal Bhavishya Yojna | 1,088.40 | 11.01 | 0.63 | 14.38 |
| SBI Magnum Children’s Benefit Fund-Savings Plan | 121.44 | 11.90 | 0.85 | 13.65 |
| Axis Children’s Gift Fund-No Lock in | 934.89 | 6.85 | 1.28 | 13.41 |
| Axis Children’s Gift Fund-Compulsory Lock in | 934.89 | 6.62 | 1.28 | 13.20 |
| LIC MF Children’s Gift Fund | 16.40 | 10.32 | 1.68 | 12.95 |
Note: The data is from 14th November 2024 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)
🚀 Pro Tip: Use Tickertape’s Mutual Fund Screener to filter and compare funds based on performance, expense ratio, and risk. Find funds that match your goals and risk tolerance for smarter investment choices.
Overview of the Best Children Mutual Fund
Tata Young Citizen Fund
The Tata Young Citizen Fund, launched in 1995, is an equity-oriented scheme primarily designed to meet the future financial needs of children. It invests in a mix of equities and debt instruments to generate long-term capital appreciation along with financial security for young investors.
The fund has an Asset Under Management (AUM) of Rs. 367.04 cr. as of 14th November 2024. Its 3-year Compound Annual Growth Rate (CAGR) is 11.74%, and its 5-year CAGR is 18.82%. The expense ratio for the fund stands at 1.89%.
ICICI Pru Child Care Fund-Gift Plan
The ICICI Prudential Child Care Fund – Gift Plan was launched in 2001 and is structured to cater to parents planning for their children’s future financial needs. It primarily invests in a mix of equity and debt securities with a focus on stable returns and long-term growth.
As of 14th November 2024, the fund has an AUM of Rs. 1,314.85 cr. The 3-year CAGR is 15.35%, while the 5-year CAGR is 17.35%. The expense ratio for the fund is 1.51%.
Aditya Birla SL Bal Bhavishya Yojna
The Aditya Birla Sun Life Bal Bhavishya Yojna was introduced in 2015 as a solution for child-related investments with long-term capital appreciation in mind. This fund diversifies its investments across equities and fixed-income securities.
Its AUM is Rs. 1,088.40 cr. as of 14th November 2024. The fund has a 3-year CAGR of 11.01% and a 5-year CAGR of 14.38%. The expense ratio is 0.63%, making it a cost-effective option for investors.
SBI Magnum Children’s Benefit Fund-Savings Plan
The SBI Magnum Children’s Benefit Fund – Savings Plan, launched in 2002, is focused on balancing growth and stability by investing in equity and debt instruments. It is aimed at securing financial resources for children’s future needs.
As of 14th November 2024, the fund manages an AUM of Rs. 121.44 cr., with a 3-year CAGR of 11.90% and a 5-year CAGR of 13.65%. The expense ratio is 0.85%.
Axis Children’s Fund-No Lock-in
The Axis Children’s Fund-No Lock-in option was introduced in 2015, providing parents flexibility while targeting wealth creation for children’s future. The fund invests across equity and debt securities, ensuring balanced growth.
It has an AUM of Rs. 934.89 cr. as of 14th November 2024. The 3-year CAGR is 6.85%, and the 5-year CAGR is 13.41%. The expense ratio is 1.28%.
Axis Children’s Fund-Compulsory Lock-in
The Axis Children’s Fund-Compulsory Lock-in variant, also launched in 2015, mandates a lock-in period but offers the same balanced portfolio approach as its No Lock-in counterpart. This ensures disciplined saving for children’s financial goals.
As of 14th November 2024, the AUM is Rs. 934.89 cr., with a 3-year CAGR of 6.62% and a 5-year CAGR of 13.20%. The expense ratio is 1.28%.
LIC MF Children’s Fund
The LIC Mutual Fund Children’s Fund was launched in 2001 and is designed to provide long-term wealth creation opportunities by investing in a mix of equity and debt securities. It aims to cater to future child-related expenses.
With an AUM of Rs. 16.40 cr., as of 14th November 2024, the fund delivers a 3-year CAGR of 10.32% and a 5-year CAGR of 12.95%. The expense ratio is 1.68%.
Features of Children’s Funds
- Lock-in Period: Investors in Children’s Funds commit to a lock-in period of a minimum of 5 years or until the child reaches 18 years of age, whichever comes first. This lock-in period ensures a disciplined, long-term investment approach, aligning with the specific financial goals associated with a child’s future needs.
- Systematic Investment Plans (SIPs): Child-oriented mutual funds often facilitate investment through SIPs, allowing parents or guardians to make regular, smaller contributions over time. This promotes disciplined and systematic investing. You can explore which SIP is best for beginners if you are new to mutual fund investing.
- Risk Profile: These funds are typically considered to have a moderate risk profile. While they may have exposure to equities for potential growth, they often include a mix of debt instruments to provide stability and mitigate risk. Hence, analysing your risk profile and whether it matches the fund can be worthwhile. For instance, you can consider mutual funds for children’s future that align with your investment goals.
- Objective of the Fund: The primary objective of Children’s Funds is to provide a stable investment avenue geared towards long-term capital gains. Investors can choose between debt-focused and equity-linked funds based on their risk and return preferences. Debt-focused funds offer stable returns with minimal risk, whereas equity-linked funds, while subject to higher short-term fluctuations, promise significant returns over an extended period. Options like the best mutual fund for children’s education can address specific financial objectives.
- Flexibility: Child-centric mutual funds often offer flexibility in terms of withdrawal options. This may include partial withdrawals or systematic withdrawal plans to meet specific financial needs as they arise.
- Education Benefits: Some mutual funds for children may come with added benefits like insurance cover or waivers of future premiums in case of an unfortunate event, ensuring the continuity of the investment plan. This makes the best child plan for education and marriage an attractive option.
- Diversification: To manage risk effectively, these funds typically diversify their investments across various asset classes, such as equities, bonds, and money market instruments. Plans like children-oriented mutual funds follow this principle to balance risk and returns.
- Professional Fund Management: Child-oriented mutual funds are managed by experienced fund managers who make investment decisions based on market conditions and the fund’s objectives.
- Tax Benefits: Certain mutual funds for children may offer tax benefits under Section 80C of the Income Tax Act, allowing investors to avail deductions on the invested amount. Some plans, such as the best investment plan for girl child in India, also offer additional benefits under the Act.
- Exit Load and Expense Ratio: Children’s Funds come with an annual expense ratio, representing the cost associated with managing the fund. Additionally, investors may incur an exit load when redeeming the fund, which should be considered as part of the overall cost structure associated with investing in Children’s Funds.
Before investing in any mutual fund for children, it’s essential for parents or guardians to thoroughly understand the fund’s features, risk factors, and investment strategy. Consulting with a financial advisor can help make informed decisions based on individual financial goals and risk tolerance.
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. For example, the best SIP for child education can provide a structured way to accumulate wealth for education.
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. Exploring child fund India options or the best one-time investment plan for child can be worthwhile.
Advantages of Investing in Children’s Funds
Goal-Based Asset Allocation: Children’s plans allow parents to allot different funds based on 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. Exploring options like the top 10 child mutual fund in India can provide clarity.
Tax Benefits: Under Section 80C of the Income Tax Act, 1961, investments made in children’s plans up to ₹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 ₹1,500 per child if the interest income exceeds ₹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 years, with a possibility of increasing it till the child attains maturity, i.e., 18 years. A long-term lock-in period allows funds to accumulate and helps in meeting the goal. Plans like the best child plan mutual fund 2024 can be particularly beneficial for achieving long-term goals.
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 best child plan mutual fund. As a result, investors can expect better returns.
Limitations of Investing in Children’s Funds
Exit Load: Mutual funds for children have a minimum lock-in period of 5 years. 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, such as the best SIP for children.
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. Plans like one-time investment plan for newborn baby might offer lower volatility options.
Factors to Consider Before Investing in Children’s Mutual Funds
Financial Goals and Investment Horizon
When investing in children’s mutual funds, it is essential to align the investment with your financial goals and the timeline for achieving them. For instance, if the primary goal is funding higher education, you should consider the years left until your child will need the funds. Equity-oriented funds may be more suitable for long-term goals due to their potential for higher returns, while debt-oriented funds might be preferred for shorter-term goals due to their stability.
Historical Performance and Consistency of Returns
Evaluating the historical performance of a mutual fund can provide insights into its potential future returns. Look for funds that have demonstrated consistent performance over multiple market cycles. This can indicate the fund’s ability to manage market volatility and deliver steady returns. However, past performance is not a guarantee of future results, so consider other factors as well.
Expense Ratio and Exit Load
The expense ratio represents the annual fee charged by the fund for managing your investment. Lower expense ratios can enhance your net returns over time. Additionally, be aware of the exit load, which is a fee charged for redeeming the fund before a specified period. Understanding these costs is crucial as they can significantly impact your overall returns.
Asset Allocation (Equity vs. Debt)
Children’s mutual funds can be equity-oriented, debt-oriented, or a balanced mix of both. Equity funds have the potential for higher returns but come with higher volatility. Debt funds, on the other hand, offer more stability with lower returns. Your choice should depend on your risk tolerance and investment horizon. A balanced approach may provide a good compromise between growth and stability.
Tax Implications
Understanding the tax implications of children’s mutual funds is crucial for effective financial planning. While investments in these funds may offer tax benefits under Section 80C, the returns are subject to taxation. Equity fund gains above ₹1 lakh per year are taxed at 10%, whereas debt fund gains are taxed at 20% with indexation benefits.
Fund Management and Reputation
The expertise and track record of the fund manager play a significant role in the performance of a mutual fund. Research the background of the fund management team and the reputation of the asset management company. Funds managed by experienced and reputable managers may be better positioned to navigate market challenges and capitalise on opportunities.
Taxability of Children’s Funds as per the 2024 Budget
Understanding the latest tax regulations on equity mutual funds is essential for making informed investment decisions. The Union Budget 2024 has introduced significant changes to the taxation of equity mutual funds, simplifying the tax structure while altering rates and benefits. Here is a detailed breakdown of the new tax rules:
Short-Term Capital Gains (STCG)
If you hold equity mutual funds for less than a year, the gains from these investments are classified as short-term capital gains. According to the new budget, these gains are now taxed at a rate of 20%, which has been increased from the previous rate of 15%.
Long-Term Capital Gains (LTCG)
For equity mutual funds held for more than a year, the gains are considered long-term capital gains. The key points to note under the new budget are:
- Tax-Free Limit: Gains up to Rs. 1.25 lakh in a financial year remain tax-free. This limit has been increased from the previous threshold of Rs. 1 lakh.
- Tax Rate: Any gains above Rs. 1.25 lakh are taxed at a flat rate of 12.5%. It was previously taxed at 10%.
- Indexation: It’s important to note that the benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation is a method used to adjust the purchase price of an asset (like property or gold) for inflation over the years. This adjusted price is then used to calculate capital gains. Previously, long-term capital gains from selling property, gold, or other unlisted assets were taxed at 20%, but you could use indexation to reduce your taxable profit. The new rule simplifies the tax structure by setting a flat 12.5% tax rate for all long-term capital gains. However, it removes the indexation benefit.
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’s 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 is 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!
FAQs About Mutual Funds for Children
What are the risks involved in children’s funds?
While children’s funds are aimed at long-term investment, they don’t guarantee returns and are susceptible to market conditions. The fluctuations and exposure in equity-linked funds make it a moderate to high risk. Hence, before investing, it is worthwhile to consider talking to an expert. Mutual funds for children’s future and children-oriented mutual funds carry these risks.
Can I gift a mutual fund to my child?
Yes, there are many mutual fund houses that offer children mutual funds, which you can gift to your children. They are also related to other requirements, such as schooling, higher education, marriage, healthcare, etc. The parents or guardians can invest in the mutual funds on behalf of their children and gift it to their children. Plans like the best mutual fund for children’s education or best mutual fund for kids education can be helpful for such goals.
Is there any requirement for investing in children’s funds?
There are certain requirements for investing in children’s funds. The parents or guardians must provide the children’s proof of age, such as a Passport, Aadhaar Card, Birth Certificate, etc., to invest in the mutual funds for kids. Proof of relationship with the child is also required. It can include a Passport or Birth Certificate with a mention of the parent’s/guardian’s name. Plans like the best child plan in India and best children mutual fund plan often adhere to these guidelines.
What is the lock-in period for children’s funds?
Mutual funds for children come with a mandatory lock-in period of 5 yrs or until the child becomes an adult. As a parent or guardian, you can invest in it for different purposes like marriage or child education. Plans like the best investment plan for child or one time investment plan for child often feature this lock-in period.
What are the SBI child plans for 5 yrs?
SBI Life Insurance offers two types of child insurance plans: the Smart Scholar Plan and the Smart Champ Insurance Plan. The Smart Scholar Plan has an entry age for children from 0 to 17 years and for parents from 18 to 57 years (as the life assured). The policy term ranges from 8 to 25 years, with premium payment options including single premium and limited premium up to the policy period.
The Smart Champ Insurance Plan has an entry age for children from 0 to 13 years and for parents from 21 to 50 years (as the life assured). The policy term varies from 5 to 18 years, with premium payment options including a single premium and various periodicities such as monthly, quarterly, half-yearly, and yearly. The sum assured for both plans depends on the policy and premium payment terms, offering flexibility to suit individual preferences and needs. Investment yojna options like these plans can align with short-term and long-term financial goals.
What is the best saving plan for a child’s future?
The best saving plan for child depends on your goals, risk appetite, and duration. Plans like the best mutual fund for child education or best sip for children future can be ideal for education and long-term growth.
What are one-time investment plans for newborn babies?
One-time investment plan for newborn baby options, such as mutual funds or ULIPs, provide long-term growth and financial security for education or marriage. They often include tax-saving benefits under Section 80C.
What is the best mutual fund for a one-time investment?
The best mutual fund for one time investment typically involves funds with a balanced portfolio of equity and debt. These funds suit parents who prefer a lump-sum investment approach over regular contributions.
What is the best sip plan for a child’s future?
The best sip plan for child future includes those focused on wealth creation for education or marriage, offering regular contributions and diversification to balance risks.
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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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