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Children’s Mutual Funds

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?

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.

Know: Myths and Facts about SIP Mutual funds

  • 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.

Which is better: Mutual Fund SIP vs Stock SIP

Historical Returns – All children’s funds comparison

Scheme Name AuM (in Rs Cr) 1 Year 2 Year 3 Years 5 Years 10 Years
HDFC Childrens Gift Fund – Direct Plan 5,609.09 22.11% 16.38% 20.83% 17.47% 16.94%
Tata Young Citizens Fund – Direct Plan-Growth 291.92 19.57% 13.83% 20.81% 17.40% 14.04%
UTI CCF- Investment Plan – Direct Plan-Growth 831.58 17.03% 9.73% 18.10% 16.06% 15.55%
UTI CCF- Investment Plan – Direct Plan-Growth 644.4 17.03% 9.73% 18.10% 16.06% 15.55%
ICICI Prudential Child Care Fund – Direct Plan – Gift Plan 980.75 21.69% 15.35% 18.77% 14.54% 15.21%
LIC MF Childrens Fund – Direct Plan 13.85 16.26% 10.98% 13.32% 13.26% 11.05%
Axis Childrens Gift Fund – Compulsory Lock-in – Direct Plan-Growth 739.69 9.72% 3.44% 11.83% 13.18%
SBI Magnum Childrens Benefit Fund – Savings Plan – Direct Plan-Growth 100.75 14.74% 8.97% 13.90% 11.17% 13.72%
UTI CCF- Savings Plan – Direct Plan 4,124.87 10.19% 7.65% 10.68% 9.24% 10.68%
UTI CCF- Savings Plan – Direct Plan 4,157.00 10.19% 7.65% 10.68% 9.24% 10.68%
Aditya Birla Sun Life Bal Bhavishya Yojna – Direct Plan-Growth 799.77 18.81% 11.89% 14.54%
SBI Magnum Childrens Benefit Fund – Investment Plan – Direct Plan-Growth 1,271.43 24.39% 16.85% 39.51%

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.

Know what to do when – Running out of Funds – Pause or Stop SIP?

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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