Understanding Children’s Mutual Funds
In this article, we have explained about children’s mutual funds, who should invest in them, their taxability, and historical return comparisons.
Children's mutual funds offer a wonderful opportunity to build a strong financial foundation for your child's future. These carefully curated plans, designed with long-term goals in mind, help you invest towards their higher education, marriage, or any other significant milestones. With diverse options and the power of compounding, these funds provide a secure and stable pathway to achieve your dreams for your child's future, while also inculcating valuable financial habits in them early on.
Children's mutual funds lock in your investment for at least 5 years, potentially extending until the child reaches adulthood (+18). This long-term commitment discourages withdrawals and protects against market volatility, promoting greater returns compared to liquidating during dips. Children's mutual funds in India often have a high exit penalty, typically exceeding 4%, to discourage early redemption and enable the funds to accumulate more interest over their typically five-year lock-in period.
Who Should invest in these funds?
Children's mutual funds are specifically designed for parents and guardians who want to build a long-term financial corpus for their child's future needs, such as education, marriage, or starting a business. Here's who should consider investing in children's mutual funds:
Parents and guardians: Parents who want to secure their child's future: Children's mutual funds offer a long-term investment horizon, allowing parents to invest for their child's future goals like higher education, marriage, or starting a business.
Parents looking to build a disciplined investment habit: Regular investments through SIPs in children's mutual funds can help parents inculcate a habit of disciplined saving and investing in their children.
Parents seeking diversification: Children's mutual funds invest in a diversified portfolio of assets, reducing the overall risk and providing a potentially higher return compared to traditional savings options.
Individuals gifting to children: Instead of gifting cash or physical items, individuals can consider gifting a children's mutual fund to provide a valuable and lasting gift.
Historical Returns – All children’s funds comparison:
|
Scheme Name
|
AUM (Crore)
|
Expense Ratio ( per cent)
|
1 Year Returns (per cent)
|
10 Years Returns (per cent)
|
Since Launch Ret ( per cent)
|
|
SBI Magnum Childrens Benefit Inv
|
2323.81
|
2.01
|
41.46
|
-
|
43
|
|
ICICI Pru Child Care Gift Cum
|
1327.55
|
2.21
|
37.06
|
12.82
|
16.13
|
|
UTI Childrens Equity
|
1100.69
|
2.26
|
32.72
|
13.93
|
11
|
|
Tata Young Citizen
|
363.27
|
2.6
|
30.66
|
13.4
|
13.39
|
|
ABSL Bal Bhavishya Yojna
|
1059.99
|
2.15
|
30.26
|
-
|
13.19
|
|
LIC MF Childrens Gift Fund
|
16.96
|
2.46
|
28.87
|
10.03
|
5.41
|
|
HDFC Children Gift Fund Investment
|
9443.03
|
1.75
|
25.56
|
14.81
|
16.66
|
|
SBI Magnum Childrens Benefit Savings
|
113.6
|
1.21
|
21.51
|
12.15
|
10.9
|
|
Axis Childrens Gift Fund Lock-in
|
872.8
|
2.31
|
21.36
|
-
|
11.12
|
|
Axis Childrens Gift Fund without Lock-in
|
872.8
|
2.31
|
21.36
|
-
|
11.12
|
|
Union Childrens Fund
|
46.7018
|
2.34
|
-
|
-
|
19.86
|
Source: Advisorkhoj.com
Taxability
Investing in children's funds offers attractive tax benefits. Interest earned and mutual funds marketed as gifts are tax-exempt. Tax is only levied when the funds mature and are disbursed, with minimal charges to maximize indexation benefits. Parents can claim additional tax exemptions under Section 80C (up to Rs. 1.5 lakh) and Section 10(32) (Rs. 1,500 per child with annual interest exceeding Rs. 6,500). Parents of children with specified disabilities may be eligible for further tax benefits.
Disclaimer: The article is for informational purposes only and not investment advice.