wealthveda

Children’s fund is an open-ended mutual fund available for investment for children. This fund has a mandatory lock-in period of 5 years or until the child becomes a major, whichever is earlier. It is a mutual fund for child-specific goals like meeting their educational expenses, relocation, or other essential expenses.

How do Mutual Funds Plans for Children Work?

They invest in both equity and debt funds to maintain a balance between growth and regular income, depending on the scheme. These are mostly hybrid funds that seeks to generate income by investing in debt, money market instruments and equity and equity related securities.

They are ideal for investors who have a long-term investment horizon. With the returns being inflation adjusted in the long run, the funds are able to beat the soaring higher education costs and other expenses and deliver effectively on their objective.

Such schemes usually invest up to 75% of their corpus in fixed income securities, money market instruments, securitized debt and cash, with G-Sec and corporate securities comprising a major part of the debt component.

The balance of up to 25% is invested in equity which seeks to provide potential capital appreciation. Since investing for child’s future is considered a long-term investment, most of these schemes come with a high exit load to discourage early redemption.

SIPs or Systematic Investment Plans are the ideal way to go about investments in Child Plan Mutual Funds since small amount of overtime can accumulate into greater returns.

Benefits of child fund plan

• Parents can opt for a customized or tailor-made fund scheme while applying for a children’s gift mutual fund scheme.
• A child-specific mutual plan is a debt-based scheme that will save investors from tax implications if it is not redeemed before the maturity period.
• The benefit of indexation helps to minimize the amount of tax imposed.
• Parents don’t have to worry about their child’s future, as their children can attain different goals at different times with sufficient financial back-up as required.