Best Mutual Funds for Children
With the cost of education increasing day by day in India, parents have to plan their children's higher education well in advance these days. While the cost of education does not seem likely to come down soon, it would be unwise to depend only on educational loans to get access to the required funds for your child's higher education.
Investing in mutual funds is one of the best ways to increase your wealth over a specific investment period, making it one of the top ways you can get the funds you need for your child's higher education.
Factors to Consider Before Investing
There are several factors that you should consider before selecting the right plan for your investment.
- The age of the child
- The income of the investor
- The type of investor
- The investment horizon
- The risk-taking capacity of the investor
Children’s Funds
An open-ended scheme that has been primarily designed for purposes such as marriage, healthcare, higher studies, relocation, and education expenses of a child is Children’s Fund. The money invested is used to purchase financial assets, instruments, debt, bonds, and stocks. Children’s Funds come with a lock-in period of 5 years or until the individual becomes an adult (whichever is earlier).
Popular Children’s Funds
Some of the popular Children’s Funds are mentioned in the table below:
Name | Minimum SIP Investment | 3Y Return | AUM (Cr.) |
SBI Magnum Children’s Benefit Fund – IP – Dir Growth | Rs.5,000 | 46.6% | Rs.2,325 |
LIC MF Children’s Fund – Direct | Rs.5,000 | 30.4% | Rs.16 |
Aditya Birla SL Bal Bhavishya Yojana – Dir Growth | Rs.1,000 | 34.8% | Rs.1,060 |
ICICI Pru Child Care Fund – Gift Plan – Direct | Rs.5,000 | 41.2% | Rs.1,327 |
AXIS Children’s Gift Fund – Lock In – Dir Growth | Rs.5,000 | 23.6% | Rs.872 |
HDFC Children’s Gift Fund – Direct Growth | Rs.100 | 29% | Rs.9,444 |
Tata Young Citizens Fund – Direct | Rs.500 | 33.9% | Rs.363 |
UTI – Children's Equity Fund – Direct Growth | Rs.1,000 | 36.1% | Rs.1,100 |
Benefits of Children’s Funds
Some of the main advantages of Children’s Funds are mentioned below:
- Additional tax benefits will be provided for parents of the child with disabilities.
- The child’s future will be secure.
- Tax benefits can be availed.
- The type of fund can be chosen.
Disadvantages of Children’s Funds
The main disadvantages of Children’s Funds are given below:
- The returns are not guaranteed as it depends on the market.
- In the case of high-risk schemes, there will be exposure and fluctuations.
Taxability of Children’s Funds
- Under Section 80C of the Income Tax Act, up to Rs.1.5 lakh can be claimed as tax benefits.
- The maturity gains are taxable
- For equity funds, 10% is the tax rate for any gains above Rs.1 lakh in a financial year.
- For debt funds, up to 20% of the capital gains must be paid as tax.
Features of Children’s Funds
The main features of Children’s Funds are mentioned below:
- Basic documents such as age proof and relationship proof must be submitted.
- The expense ratio is charged every year.
- An exit load must be paid when the funds are redeemed.
- Children’s Funds come with a lock-in period of 5 years or until the individual becomes an adult (whichever is earlier).
FAQs
- Do Children’s Funds come with a lock-in period?
Yes, Children’s Funds come with a lock-in period of 5 years or until the individual becomes an adult (whichever is earlier).
- Is it possible to gift a mutual fund?
Yes, mutual funds can be gifted to your child.
- Can the Aadhaar Card be submitted as age proof?
Yes, Aadhaar Card can be submitted as age proof.
- Do returns on child plans depend on the market?
No, returns on child plans do not depend on the market.
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