What Are Children’s Mutual Funds And How To Invest In Them?

Every parent wants their child to become financially secure. They may want to set up a college fund or seed money for a start-up for their child. As such, childcare funds can be a good idea to build a corpus.

Various mutual fund schemes, such as children’s gift funds, children’s asset plans, and children’s career plans, are available, depending on a specific goal.

These are mostly hybrid mutual funds. They invest a portion of their corpus in safe debt instruments or debt bonds that loan money to a private or government organisation for interest income. They also invest in stocks that offer higher returns compared to debt bonds.

Thus, these funds aim to balance the risk and rewards by diversifying their investments in various instruments. “Children’s mutual fund is for children below 18 years of age. These funds typically invest in equity and debt instruments, with a lock-in of 5 years. Early withdrawal is allowed by some AMCs but with a high exit load of 3 to 4%,” said Abhijit Talukdar, a Sebi registered financial planner.

How To Invest In A Children’s Mutual Fund

Any child under 18 years can invest in a mutual fund in their name. However, unlike a bank account, the fund cannot be held jointly. "The guardian needs to have proof of the child's age, a birth certificate or a passport copy, and a proof of the guardian's relationship with the child" at the time of making the first investment, said Kedar Deshpande, head of retail distribution, at ICICI Securities.

Points To Remember

A Systematic Investment Plan (SIP) can be an ideal way to invest in small amounts every month towards the child’s mutual fund instead of a lump sum amount. “Parents can start a SIP in a folio held by a minor. However, this SIP will continue only till the date the minor attains majority. Once the child turns 18, the SIP will stop, even though the instructions may be beyond that date,” said Deshpande.

This exercise can be a good lesson about managing money—spending and investing techniques—for the child. “Try and invest in specific funds for specific goals associated with the child. Monitoring becomes easy in this case, and encourage the child to invest a portion of her pocket money into the fund to inculcate healthy curiosity in mutual funds and investing,” said Talukdar.

Performance Of Children Mutual Funds

HDFC Child Gift fund has the highest assets under management (AUM) in the children's mutual fund category, with Rs 5,609 crore. This fund's net asset value (NAV) rose by 17.1 per cent in the past three years. Also, around 66 per cent of its funds are invested in equities, while 25.4 per cent are directed towards debt bonds. The fund has invested 6.1 per cent of its assets in sovereign government bonds and 5.2 per cent and 5.1 per cent in ICICI Bank Ltd and Reliance Industries Ltd., respectively.

UTI Children Career Investment Regular Plan

The fund has Rs 644 crore worth of AUM. Its NAV is up 17.9 per cent in three years but is down 2.7 per cent in a year, given 98.2 per cent of the funds were in equities and only 0.1 per cent in debt.

ICICI Prudential Child Care Gift Plan

It has Rs 845.4 crore worth of assets under management. The NAV is up 13.5 per cent in the last three years and 2.49 per cent in one year. The fund has invested 76.2 per cent of its assets in equity and 21.6 into debt instruments. It has diversified its equity investments almost equally in various sectors.