Children’s mutual funds or children’s gift mutual funds, as the name suggests, are investments parents make for their children with a specific goal, like higher education, marriage or any other need the child might have once he/she grows up. For most parents, securing the future of their child is of utmost importance. With rising prices and global changes, every parent hopes they can manage to save enough for significant milestones in their children’s life. Many a time, parents opt for fixed deposits and other traditional methods of savings to prepare for the future of their children. But there is a better way to save for your children, that is to invest in children’s funds.
Children’s funds are goal oriented, meaning they are created for a specific purpose, which is why they are considered a more long-term kind of investment. Hence, they have a lock-in-period of five years or till the child attains majority, whichever is earlier. These funds can be started by parents or even grandparents, who can keep the child’s parents as guardians of the funds. Children themselves can also invest in funds, through their parents or legal guardians. In such a case, there cannot be joint holders of the mutual fund account.
Often parents underestimate the cost of higher education for their children. The money lying in the bank usually doesn’t hold up well against inflation and other vagaries of the future. Not just that, while estimating the costs of future life goals, often parents think of only the major goal and miss out on the ancillary costs. For example, in the case of higher education, parents may consider only tuition fees but not the cost of living on campus, inflation, etc. Investing in a mutual fund helps somewhat mitigate these uncertainties as one gets more for one’s money. Asset management companies also prefer children’s funds because they have an inbuilt lock-in period, which means they get more time to play the market to the investor’s advantage.
There are two types of children’s funds. Hybrid equity-oriented funds and hybrid debt-oriented funds. Hybrid equity-oriented funds are for those who are okay with a little bit of risk in their investments. Hybrid debt-oriented funds on the other hand are for the more conservative investors. Usually, if the parent has started investing while the child is very young, then hybrid equity funds are advised as equities are considered to be stable over a longer period of time. However, if the child is closer to the age of majority, then a debt-oriented fund is a better bet.
Children’s funds can be in the form of a one-time investment or in the form of SIPs. In the case of SIPs, the contribution to the SIP can be increased over time based on fresh considerations for the child’s future needs too. Education plans and plans for the girl child are available with many asset management companies. A parent needs to pick the right kind of fund based on factors like the actual goal for which they are investing, the number of years after which they intend for the child to utilise the fund, the risk they are willing to take, and the general performance of the fund selected. Investing in a child’s future is, of course, no child’s play and hence the choice has to be made wisely.
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