Investing in a child’s future is one of the most crucial financial decisions parents make. From higher education to career-building, financial security is essential. While traditional saving methods like fixed deposits and recurring deposits are still popular, investment in mutual funds—especially children’s funds—has gained significant traction.
Children’s investment funds are specially designed mutual fund schemes that help parents accumulate wealth over time for their child’s education, marriage, or other significant expenses. These funds not only provide disciplined savings but also offer market-linked returns that can outpace inflation. Let’s explore the top 5 children’s funds in India and their 5-year performance.
Why Choose a Children’s Investment Fund?
Before diving into the top-performing schemes, it is important to understand why children’s funds can be a smart choice:
- Long-Term Growth: These funds primarily invest in equity or a mix of equity and debt, providing better returns over the long run.
- Lock-in Period for Discipline: Many children’s funds come with a lock-in period, ensuring disciplined investment for your child’s future.
- Tax Benefits: Some schemes offer tax benefits under Section 80C of the Income Tax Act.
- Goal-Oriented Investing: These funds are structured to meet future financial goals like education and marriage.
Top 5 Children’s Investment Funds & Their 5-Year Returns
Now, let’s take a closer look at the best-performing children’s mutual fund schemes in India based on their returns over the past five years:
1. HDFC Children’s Gift Fund
- Category: Hybrid (Equity-Oriented)
- 5-Year Average Return: ~14% per annum
- Fund Strategy:
- Primarily invests in equity and equity-related instruments (65-80%).
- The remaining allocation is in debt and money market instruments for stability.
- Suitable for long-term investors looking for growth with controlled risk.
- Who Should Invest?
- Parents who want an aggressive yet balanced approach to wealth creation for their child’s future.
- Investors willing to stay invested for a long period due to equity exposure.
2. ICICI Prudential Child Care Fund (Gift Plan)
- Category: Hybrid (Equity-Oriented)
- 5-Year Average Return: ~12.8% per annum
- Fund Strategy:
- Focuses on a mix of equity (65% or more) and debt securities.
- Aims to provide long-term capital appreciation with moderate volatility.
- Suitable for investors with a medium to long-term investment horizon.
- Who Should Invest?
- Parents looking for a mix of growth and stability.
- Investors comfortable with some market fluctuations.
3. SBI Magnum Children’s Benefit Fund (Investment Plan)
- Category: Hybrid (Equity-Oriented)
- 5-Year Average Return: ~13.5% per annum
- Fund Strategy:
- Invests in high-quality equity instruments for long-term wealth creation.
- A portion is allocated to debt to balance risk.
- Comes with a lock-in period, ensuring disciplined savings.
- Who Should Invest?
- Parents who want a structured plan for their child’s future goals.
- Those who can stay invested for at least 5-10 years.
4. UTI Children’s Career Fund (Savings Plan)
- Category: Hybrid (Debt-Oriented)
- 5-Year Average Return: ~9% per annum
- Fund Strategy:
- Primarily invests in debt securities for stable returns with lower risk.
- Equity allocation is minimal, making it less volatile.
- Suitable for risk-averse investors looking for stability rather than high returns.
- Who Should Invest?
- Parents who prefer lower risk and moderate returns.
- Investors looking for a more conservative option with steady growth.
5. Axis Children’s Gift Fund
- Category: Hybrid (Equity-Oriented)
- 5-Year Average Return: ~11.5% per annum
- Fund Strategy:
- Invests majorly in equity, with a small allocation to debt for risk management.
- Designed to provide long-term capital appreciation.
- Comes with a lock-in period, promoting disciplined investment.
- Who Should Invest?
- Parents seeking higher returns with a well-diversified portfolio.
- Investors who can tolerate some market volatility.
Factors to Consider Before Investing in a Children’s Fund
Investing in children’s funds requires careful evaluation. Here are key factors to keep in mind:
1. Investment Horizon
Since these funds are meant for long-term goals, you should be prepared to stay invested for at least 5-10 years to maximize returns.
2. Risk Appetite
Children’s funds are hybrid in nature, with different risk levels. If you prefer lower risk, opt for debt-oriented funds. If you seek high returns, equity-oriented funds are a better choice.
3. Expense Ratio
The expense ratio indicates the cost of managing the fund. Lower expense ratios ensure higher take-home returns.
4. Lock-in Period
Some children’s funds have a mandatory lock-in period, ensuring disciplined savings. Understand the terms before investing.
5. Tax Implications
- Long-term capital gains (LTCG) tax is applicable on equity-oriented funds if the gain exceeds ₹1 lakh.
- Debt-oriented funds are taxed based on income tax slabs.
Final Thoughts
Children’s investment funds offer an excellent way to build a secure financial future for your child. Whether you choose an equity-heavy plan for higher returns or a debt-oriented scheme for stability, these funds help in disciplined wealth accumulation over time. By selecting the right scheme and staying invested, you can ensure that your child’s dreams are financially secure.
