- Date : 06/03/2023
- Read: 3 mins
Looking at children financial planning by comparing children's mutual funds with other scheme options
Mutual funds help investors achieve their long term financial goals. There are different types of mutual funds, that invest in different equity and debt investment options. Mutual funds are designed to address the specific investment goals of the investor as well. If you are planning to invest in mutual funds for your child’s future, you will come across children’s mutual funds as one of the options. You may wonder, what is it about children’s mutual funds that make them different from other mutual funds? Let us find out a little more about investments in children’s mutual funds.
Also Read: Business cycle mutual funds: What are they and how do they differ from diversified mutual funds
Children’s mutual funds
Mutual funds for children are hybrid fund schemes that have a mix of equity and debt investments. Like retirement funds, these funds are classified by SEBI as solution-oriented funds. These funds have a lock-in of five years, or till the child is 18 years old, whichever is earlier. The solution offered is the accumulation of a corpus to cover the child’s higher education, marriage and general welfare expenses.
Thus, a children’s mutual fund fulfils several of your financial goals.
- These fund schemes encourage investors to undertake long-term financial planning. Its lock-in period and exit load discourage investors to enter and exit the scheme at will.
- It helps investors fulfil the long-term goals of their children. The maturity sum comes in handy to meet college education or marriage expenses.
- You can maintain multiple funds to meet different goals of your child. You can exit these schemes as and when your child’s financial need arises.
Children’s mutual funds vs Other Options
Purely from a returns point of view, various other fund schemes offer more or at least equal returns as a children's mutual fund. During the last year, children’s mutual fund returns ranged between -6.68% and 7.22%. Three-year returns for these funds ranged between 9 to 18% approximately. On the other hand, if you look at the one-year return of all leading fund schemes, you will see many sectoral/thematic, multi-cap, aggressive hybrid, ELSS funds etc. have performed better than the solution-oriented funds.
Therefore, investors who have a risk appetite and market knowledge can opt for more aggressive equity funds. Such funds are susceptible to market volatility but deliver good value over a long period. If you are determined to maintain a long term investment horizon, you can opt for an ELSS or a large-cap fund rather than the hybrid children funds. Even investors with a low risk appetite may want to invest in steady debt funds rather than going for hybrid schemes.
Also Read: Find out the procedure laid down by SEBI for Association of Mutual Funds to launch a passive ELSS
There are better fund categories when it comes to returns. However, children’s mutual funds can help investors avoid financial ill-discipline, trust the fund manager’s expertise and save for their child’s future.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
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