Children’s fund programs are a form of mutual fund with specific goals related to children. They can also be termed plans to solve the rising cost of children’s education and other necessary expenses.
The best mutual fund for a child’s education usually invests in equity and debt-related securities.
However, investors can also choose between higher debt and higher equity investments according to their individual preferences and risk appetite.
Children’s funds come with a minimum 5-year lock-in period and can be extended until the child becomes an adult. These are long-term investment options, and holding investments even during market fluctuations ensures higher returns than liquidating funds during a market downturn.
What is a children’s gift mutual fund?
Child gift funds are mutual fund plans that provide financial benefits to your children for things like wedding expenses, future school fees, etc.
This leads to long-term capital growth and is classified as Hybrid Fund or Balanced Mutual Fund. Gift funds invest in equity and debt asset classes.
Fixed income securities are the type of debt instrument, while stocks are the type of equity.
Purpose of the children’s fund
The primary purpose of the children’s fund is to provide financial support for the child’s future if they want to pursue higher studies abroad or in India.
A mutual fund ensures that parents do not compromise on their child’s growth due to a lack of funds.
A child plan fund is a better option compared to an education loan. With them, you can get the maximum and guaranteed return on the money you invest.
Parents can opt for a minimum of five years or more extended lock-in period for the funds until their child turns 18.
And if an investor is considering liquidating a child plan mutual fund before the minimum lock-in period of five years, then the fund can charge a penalty of up to 4%.
Who should invest in a children’s fund?
A child plan fund is ideal for those looking for a long-term investment primarily to save for child-related expenses. Even those who do not want to get involved in schemes with huge risks and want good returns can invest in children’s mutual funds.
Most mutual funds with a child plan are customizable, which offers additional relief to investors. When a child crosses the age of 18, authorization can be given through the KYC process from the financial institution.
Additional read: Dollar to rupee investing
Best mutual funds for child education
1. SBI Magnum Children’s Benefit Fund
The fund is an Aggressive Hybrid Mutual Fund Plan. It is a mid-sized fund in its category, with assets under management (AUM) of Rs 151 crore as on June 30, 2021.
The fund has an expense ratio is 0.82%, which is comparable to the expense ratio charged by most other Aggressive Hybrid funds.
2. UTI CCF Investment Plan
The fund has a market cap of Rs 504.40 crore. The UTI CCF investment plan is benchmarked against the flagship CRISIL Balanced Fund – Aggressive Index as well as NIFTY 50 – TRI and NIFTY 500.
3. HDFC Children’s Gift Fund
This is a mid-cap fund in its category with assets under management (AUM) of ₹ 4,667 crores. The fund’s expense ratio is 1.04%. The fund now has a 67.10% equity allocation and a 19.07% debt allocation.
4. Axis Children Gift Fund – No Lock-in
This is a children’s fund focused on Axis mutual fund solutions. It has a market cap of Rs 607.91 crore. Nifty 50 (TRI) index is used as the primary index, and NIFTY 50 Hybrid Composite Debt 65:35.
5. LIC MF Children Fund
The fund has an expense ratio of 1.89%, which is higher than the category average of balanced hybrid funds. The fund currently holds an equity allocation of 88.16% and a debt exposure of 10.87%.
The returns of LIC MF Direct-Growth Fund Children’s Gift Fund for the last year were 33.91%.
Why should you consider child education mutual funds?
Choose an investment option that can beat inflation over a long-term period. Always consider investing your money as per your risk appetite to build a fund for your child’s college education.
If you want to save money for your child’s higher education and you have a longer horizon to save, then equity mutual funds are a good choice.
Investing in mutual funds over time provides much better returns than any other type of savings. Returns are better if the time horizon is longer.
Conclusion
Irrespective of the fund you choose, there is no alternative to starting early.
In addition to several advantages, the long-term horizon enables maximum returns from equity mutual funds while mitigating the risks of market volatility.
Additionally, consider increasing the SIP amount yearly for a healthy corpus to fund your child’s education.
Note: All funds mentioned in the article are Direct mutual funds
