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.
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Name
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AUM
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3Y Returns
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| ₹10,487.86 cr | 9.42 % | ||
| ₹1,417.47 cr | 14.69 % | ||
| ₹144.69 cr | 12.25 % | ||
| ₹15.56 cr | 9.59 % | ||
| ₹1,108.89 cr | 9.10 % | ||
| ₹892.23 cr | 8.53 % | ||
| ₹892.23 cr | 8.53 % | ||
| ₹892.23 cr | 8.53 % | ||
| ₹334.48 cr | 7.49 % | ||
| ₹1,208.18 cr | 11.80 % |
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.
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 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.
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.
Children’s mutual funds are built differently from regular equity or debt funds. A few specific features make them suited to long-term goal-based investing. Here is what sets these funds apart from other mutual fund categories.
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.
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.
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.
Investing in a Children's Fund requires additional documentation, such as proof of the child's age and proof of relationship with the investor.
Not all children’s mutual funds follow the same investment approach. Some lean towards equity for higher growth, others mix in more debt for stability. Here is a look at the main types available in this category.
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-oriented funds prioritise stability by investing in fixed-income securities. They are ideal for conservative investors who prefer predictable returns over aggressive growth.
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.
Children’s funds are not a one-size-fits-all product. What the right investor profile is will depend on your financial goals, how much time you have until the money is needed and how much risk you can comfortably take on.
Children’s Funds are ideal for parents looking to create a structured investment plan to support their child's education and other future needs.
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.
Debt-focused Children's Funds provide a low-risk investment option for parents who prioritise stability over high returns.
Getting started with children's mutual funds is straightforward. The process is similar to investing in any other mutual fund category. What matters more is planning the investment around when the money will actually be needed.
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.
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.
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.
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.
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.
Children’s mutual funds offer a few real advantages for parents thinking ahead. These benefits go beyond just returns — the structure of these funds is designed to support long-term, goal-focused investing for a child's future needs.
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.
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.
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.
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.
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.
Like any investment, children’s mutual funds carry risks that are worth understanding before you commit. Knowing these risks upfront helps you make a more considered decision rather than being caught off guard later.
Since children funds may have a higher equity allocation, they are exposed to stock market volatility, which can impact returns.
Debt-oriented funds are affected by fluctuations in interest rates, which may influence fixed-income securities' performance.
The lock-in period restricts premature withdrawals, making it important for investors to plan accordingly for liquidity needs.
While these funds aim to provide long-term growth, inflation may reduce the purchasing power of returns if investment planning is inadequate.
Early withdrawals before the completion of the lock-in period can attract an exit load, impacting overall gains.
A few things are worth thinking through carefully before you invest in a children's mutual fund. Getting the basics right from the start makes it far more likely the investment actually meets the goal it was meant for.
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.
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.
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.
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.
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.
How a children's mutual fund is taxed depends on where the money is invested — equity or debt. The tax treatment differs between the two, and it is worth understanding before you choose a fund type.
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.
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.
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.
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.
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