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Children's Funds are open-ended investment schemes specifically designed to help parents and guardians save for their children's future financial needs, such as education and healthcare. These funds provide a structured approach to wealth creation, ensuring financial security for children when they reach adulthood. By combining equity and debt investments, these funds cater to varying risk appetites while aiming to generate returns over the long term.
|
Name
|
AUM
|
1Y Returns
|
|
|---|---|---|---|
ICICI Pru Child Care Fund-Gift Plan |Childrens Fund Buy |
₹1299.78 cr. | 6.32% | |
|
Aditya Birla SL Bal Bhavishya Yojna - Reg (IDCW) - Payout |Childrens Fund Buy |
₹1058.34 cr. | 5.28% | |
|
Tata Young Citizens Fund (After 7 Years) |Childrens Fund Buy |
₹354.16 cr. | 7.88% | |
|
Baroda BNP Paribas Children's Fund - Regular (IDCW) - Payout |Childrens Fund Buy |
₹80.52 cr. | % | |
|
LIC MF Children's Fund |Childrens Fund Buy |
₹14.69 cr. | 3.91% | |
|
SBI Magnum Children's Benefit Fund - IP (G) |Childrens Fund Buy |
₹3358.05 cr. | 15.60% | |
|
Aditya Birla SL Bal Bhavishya Yojna - Reg (G) |Childrens Fund Buy |
₹1058.34 cr. | 5.28% | |
|
SBI Magnum Children's Benefit Fund - Savings Plan (G) |Childrens Fund Buy |
₹126.54 cr. | 13.93% | |
|
AXIS Children's Fund - Lock in (G) |Childrens Fund Buy |
₹885.69 cr. | 11.13% | |
|
AXIS Children's Fund - Lock in (IDCW) - Payout |Childrens Fund Buy |
₹885.69 cr. | 11.13% |
A Children's Fund, also referred to as a Child Gifting Mutual Fund, is a solution-oriented investment scheme that focuses on building a financial corpus for a child's future. These funds generally invest in a mix of equities and debt instruments, offering both growth and stability.
Children’s Funds typically come with a mandatory lock-in period of five years or until the child reaches adulthood, whichever comes first. This lock-in ensures disciplined investing and prevents premature withdrawals. These funds are structured to address long-term financial goals, making them an essential component of financial planning for parents.
Children’s mutual funds function by strategically allocating assets between equities and debt instruments. The proportion of equity and debt in the fund varies based on market conditions and fund strategy.
Equity-Oriented Children's Funds - These funds allocate 60% or more of their portfolio to equities, offering the potential for high returns over the long term. However, they are subject to market volatility, making them suitable for investors with a higher risk appetite and a long investment horizon.
Debt-Oriented Children's Funds - Debt-oriented funds invest 60% or more of their assets in fixed-income securities, providing stability and predictable returns. These funds are suitable for conservative investors who prioritise capital protection over aggressive growth.
Lock-in Period and Withdrawals - Children’s Funds come with a lock-in period of at least five years or until the child turns 18. Early withdrawals are generally restricted, ensuring that the funds remain dedicated to the child’s future needs. Upon maturity, the accumulated corpus can be used for expenses such as higher education, medical needs, or other essential financial requirements.
Fund Objective - Children’s Funds aim to provide financial security by accumulating wealth over time. They offer a mix of steady returns from debt investments and potential capital growth from equities.
Mandatory Lock-in Period - These funds require investors to remain invested for at least five years or until the child reaches 18, whichever is earlier. This lock-in period ensures a disciplined investment approach and prevents impulsive withdrawals.
Exit Load and Expense Ratio - Children’s Funds usually have an exit load applicable if funds are withdrawn before the lock-in period. Additionally, these funds carry an expense ratio, which covers fund management fees.
Documentation Requirements - Investing in a Children's Fund requires additional documentation, such as proof of the child's age and proof of relationship with the investor.
Equity-Focused Children's Funds - These funds primarily invest in equities and equity-related instruments, targeting long-term capital appreciation. They are suitable for investors who can tolerate higher risk for potentially higher returns.
Debt-Focused Children's Funds - Debt-oriented funds prioritise stability by investing in fixed-income securities. They are ideal for conservative investors who prefer predictable returns over aggressive growth.
Hybrid Children's Funds - Hybrid funds maintain a balanced allocation between equity and debt, ensuring a mix of stability and growth. They are suited for investors looking for moderate risk exposure.
Parents Planning for Long-Term Financial Goals - Children’s Funds are ideal for parents looking to create a structured investment plan to support their child's education and other future needs.
Investors with a Long-Term Investment Horizon - Since these funds have a lock-in period, they are well suited for investors willing to stay invested for at least five years or more.
Conservative Investors Looking for Secure Investment Options - Debt-focused Children's Funds provide a low-risk investment option for parents who prioritise stability over high returns.
Investing in children funds involves careful planning and selecting the right investment strategy to secure a child's financial future. These funds are structured to accumulate wealth over time to meet expenses such as education, healthcare, and other life goals. Below are the steps to invest in children funds:
Step 1: Select a Suitable Children Fund - Parents or guardians should evaluate different children funds based on historical performance, asset allocation, expense ratio, and investment objective. Some funds have a higher equity allocation, while others focus more on debt instruments, so choosing the right mix based on risk tolerance is crucial.
Step 2: Open an Investment Account - To invest in children funds, investors must have a mutual fund account with a SEBI-registered asset management company (AMC) or a brokerage platform. KYC (Know Your Customer) compliance, including proof of identity, address, and relationship with the child, is required.
Step 3: Choose the Investment Mode - Investors can opt for either a lump sum investment, where a single large amount is invested, or a Systematic Investment Plan (SIP), where a fixed amount is invested at regular intervals (monthly or quarterly). SIPs help manage market fluctuations by averaging the purchase cost over time.
Step 4: Understand the Lock-in Period - Children funds typically come with a mandatory lock-in period of five years or until the child reaches adulthood. Investors should be aware of this limitation, as early withdrawals may attract an exit load.
Step 5: Track and Manage Investments - Once the investment is made, it is important to monitor the fund’s performance regularly. Investors should review the portfolio allocation, compare returns with benchmarks, and make adjustments if necessary.
1. Tailored Financial Planning for a Child’s Future - Children funds are designed to accumulate wealth systematically, ensuring that future financial requirements such as education, marriage, and healthcare are adequately met. These funds provide a structured approach to financial planning, allowing parents to save efficiently for long-term goals.
2. Diversified Investment Approach - These funds offer a mix of equity and debt instruments, ensuring a balance between capital appreciation and stability. The combination of different asset classes helps manage market risks while optimising returns over time.
3. Lock-in Period Ensures Disciplined Savings - The lock-in period of five years or until the child turns 18 discourages premature withdrawals, ensuring that the investment remains intact for its intended purpose. This feature helps prevent impulsive financial decisions and keeps savings dedicated to the child’s future.
4. Potential for High Long-Term Returns - Equity-oriented children funds provide growth potential by investing in the stock market, which can yield significant returns over time. Investors with a long-term perspective can benefit from compounding, allowing their wealth to grow exponentially.
5. Tax Benefits for Parents and Guardians - Investments in children funds may qualify for tax benefits under Section 80C of the Income Tax Act, allowing deductions of up to ₹1.5 lakh annually. Additionally, indexation benefits on long-term capital gains help reduce tax liabilities.
Market Risk – Since children funds may have a higher equity allocation, they are exposed to stock market volatility, which can impact returns.
Interest Rate Risk – Debt-oriented funds are affected by fluctuations in interest rates, which may influence fixed-income securities' performance.
Liquidity Risk – The lock-in period restricts premature withdrawals, making it important for investors to plan accordingly for liquidity needs.
Inflation Risk – While these funds aim to provide long-term growth, inflation may reduce the purchasing power of returns if investment planning is inadequate.
Exit Load Penalties – Early withdrawals before the completion of the lock-in period can attract an exit load, impacting overall gains.
1. Investment Objective and Financial Goals - Investors should clearly define the financial goals associated with the investment, whether it is higher education, medical expenses, or other life milestones. Choosing a fund that aligns with these objectives ensures better financial planning.
2. Risk Appetite and Asset Allocation - Children funds come with varying asset allocations. While equity-oriented funds offer higher returns, they also carry greater volatility. Debt-focused funds provide stability but may generate lower returns. Investors should assess their risk tolerance before selecting a fund.
3. Fund Performance and Historical Returns - Reviewing the past performance of the fund across different market cycles helps investors understand its consistency and risk-adjusted returns. Funds with a stable track record over 5–10 years are generally preferred.
4. Expense Ratio and Exit Load - A higher expense ratio can impact net returns. Investors should compare expense ratios among different funds to select a cost-efficient option. Additionally, understanding the exit load structure is essential, as premature withdrawals may attract high penalties.
5. Lock-in Period and Redemption Terms - Since these funds come with a mandatory lock-in period, investors should ensure they have other liquid assets available for unforeseen expenses. Redemption policies should also be reviewed to understand how and when funds can be withdrawn upon maturity.
1. Capital Gains Taxation
The taxation of children funds depends on their asset allocation. If the fund has 65 percent or more exposure to equities, it is taxed as an equity fund.
Short-term capital gains (investments held for less than one year) are taxed at 15 percent.
Long-term capital gains (investments held for more than one year) above ₹1 lakh are taxed at 10 percent without indexation benefits.
If the fund has less than 65 percent in equities, it is taxed as a debt fund.
Short-term capital gains (investments held for less than three years) are taxed as per the investor’s income tax slab.
Long-term capital gains (investments held for more than three years) are taxed at 20 percent with indexation benefits.
2. Dividend Taxation - Dividends received from children funds are added to the investor’s taxable income and taxed as per the applicable income tax slab. A 10 percent TDS (tax deducted at source) applies if the dividend amount exceeds ₹5,000 in a financial year.
3. Tax Deduction for Parents Under Section 80C - Parents investing in these funds can claim a deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act, reducing taxable income.
Fund Name | AUM (₹ Cr.) | 3Y CAGR (%) | Expense Ratio (%) |
SBI Magnum Children’s Benefit Fund | 3,014.82 | 19.41 | 0.75 |
Aditya Birla Sun Life Bal Bhavishya Yojna | 955.83 | 12.47 | 0.65 |
LIC MF Children’s Gift Fund | 14.00 | 9.93 | 0.95 |
Tata Young Citizen Fund | 366.67 | 13.04 | 1.25 |
ICICI Prudential Child Care Fund – Gift Plan | 1,319.77 | 16.25 | 1.00 |
SBI Magnum Children’s Benefit Fund
SBI Magnum Children’s Benefit Fund is designed to help parents build a financial corpus for their child’s future expenses, such as education and healthcare. With an AUM of ₹3,014.82 crore, it primarily invests in equities to generate long-term growth. The fund follows an active management strategy, adjusting its portfolio based on market conditions. It has delivered a three-year CAGR of 19.41 percent, making it a strong performer among children’s funds. The mandatory lock-in period ensures disciplined investment, preventing premature withdrawals. This fund is suitable for investors seeking long-term capital appreciation with a higher risk appetite.
Aditya Birla Sun Life Bal Bhavishya Yojna
Aditya Birla Sun Life Bal Bhavishya Yojna is a balanced fund that invests in both equities and debt instruments, providing a mix of growth and stability. With an AUM of ₹955.83 crore, it is ideal for parents looking for a structured way to invest for their child's future. The fund has delivered a three-year CAGR of 12.47 percent, ensuring moderate returns while managing risk. It offers flexibility in asset allocation, allowing investors to choose between equity-heavy or debt-focused plans based on risk appetite. This fund is suitable for investors seeking a stable yet growth-oriented investment for their child’s long-term needs.
LIC MF Children’s Gift Fund
LIC MF Children’s Gift Fund is a solution-oriented mutual fund with an AUM of ₹14.00 crore, primarily focusing on capital preservation and gradual growth. It has a three-year CAGR of 9.93 percent, making it a lower-risk option compared to equity-heavy children’s funds. The fund invests predominantly in debt instruments, ensuring stability while offering moderate returns. It is suitable for parents who prefer a conservative investment approach while still benefiting from market-linked returns. The fund’s lock-in period helps maintain disciplined savings, making it a good option for financial planning towards a child’s education or other long-term expenses.
Tata Young Citizen Fund
Tata Young Citizen Fund aims to create a financial cushion for children’s future needs by investing in a mix of equity and debt instruments. With an AUM of ₹366.67 crore, it has delivered a three-year CAGR of 13.04 percent, offering balanced growth potential. The fund focuses on long-term capital appreciation while maintaining some level of stability through debt exposure. It is ideal for parents looking for an investment that combines growth opportunities with controlled risk. The lock-in period ensures that the investment remains intact until needed for significant expenses like higher education.
ICICI Prudential Child Care Fund – Gift Plan
ICICI Prudential Child Care Fund – Gift Plan is a children’s mutual fund with an AUM of ₹1,319.77 crore, offering a blend of equity and debt investments. It has delivered a three-year CAGR of 16.25 percent, making it a competitive option for long-term investors. The fund’s diversified allocation helps balance market risks while ensuring potential growth. It is suitable for parents who want to build a financial foundation for their child while benefiting from professional fund management. The structured lock-in period ensures disciplined investing and prevents premature withdrawals that could disrupt financial planning.
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Yes, children funds offer both equity-focused and debt-focused options, making them suitable for investors with different risk appetites. Those with a low-risk preference can opt for debt-oriented children funds, which prioritise stability over high returns while still ensuring long-term wealth accumulation for a child's future needs.
Children funds carry varying levels of risk depending on their asset allocation. Equity-heavy funds are subject to market fluctuations, while debt-focused funds offer more stability with lower returns. The lock-in period also helps reduce short-term volatility, making them a structured investment option for long-term goals.
Children funds are well suited for parents or guardians looking to systematically save for their child’s future expenses, such as education and healthcare. These funds cater to investors with a long-term investment horizon, ensuring disciplined savings while offering growth potential through equity or stability through debt instruments.
An example of a children fund is SBI Magnum Children’s Benefit Fund, which primarily invests in equities to generate long-term growth. It follows an active management strategy, adjusting its portfolio based on market conditions. Other options include ICICI Prudential Child Care Fund – Gift Plan and Aditya Birla Sun Life Bal Bhavishya Yojna.
Investing in children funds is beneficial for parents who want to secure their child’s financial future through disciplined savings. These funds offer structured wealth accumulation, tax benefits, and long-term growth potential. However, suitability depends on the investor’s risk appetite and financial goals for their child.
The returns on children funds vary based on asset allocation. Equity-heavy funds have historically delivered returns between 12-18 percent CAGR, while debt-oriented funds offer more stable returns in the range of 7-10 percent CAGR. Since they are long-term investments, compounding enhances returns over time.
Children funds are subject to market risk in equity-oriented plans and interest rate fluctuations in debt-focused funds. Liquidity risk exists due to the lock-in period, restricting early withdrawals. Inflation may also impact real returns, and high expense ratios can affect overall investment gains.
Yes, the taxation of children funds depends on their asset composition. If equity exposure exceeds 65 percent, short-term capital gains (held for less than one year) are taxed at 15 percent, while long-term gains (above ₹1 lakh) are taxed at 10 percent. Debt-heavy funds follow regular debt taxation rules.
The investment amount depends on financial goals, time horizon, and affordability. Parents can start with a lump sum or systematic investment plan (SIP), ensuring disciplined contributions. Evaluating future expenses such as education or healthcare can help determine the appropriate investment amount for optimal wealth creation.
Mutual Fund Categories |
|---|
| Debt Funds |
| Equity Funds |
| Hybrid Funds |
| Solution Oriented Funds |
Mutual Fund Sub Category |
|---|
| Large Cap |
| Mid Cap |
| Small Cap |
| Arbitrage |
| Aggressive Hybrid |
| Banking and PSU |
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