CHILDREN’S GIFT MUTUAL FUNDS

 

What is a Children's Gift Mutual Fund?

Children's Gift Funds fall under the category of Hybrid Funds or Balanced Mutual Funds. Gift Funds invest in appropriate proportion of Debt and Equity assets.

These funds aim is to create corpus through long term capital appreciation to provide financial assistance during children’s crucial stages for education, marriage, etc.

These mutual funds have a minimum lock-in period of 5 years, and they can be extended until the child becomes an adult. Children’s mutual funds do not allow an investor to withdraw the money until the maturity, making it an ideal long-term investment option. Due to its long-term nature, it also protects an investor against market volatility to some extent. Being patient with the investment despite market fluctuations ensures greater return than selling it whenever market dips.

Types of Children's Gift Mutual Fund

Based on the level of exposure to equities, these are classified further as,

"Hybrid-Equity Oriented Funds", if the equity exposure is more than 60% and the remaining is invested in debt assets, the mutual fund is treated as an Equity Oriented Balanced Fund.

"Hybrid-Debt Oriented Funds", if debt exposure is more than 60% and the remaining is invested in equity assets, the mutual fund is treated as a Debt Oriented Balanced Fund.

Education Inflation impact on Child's long-term needs

We want the best for our children. We want our child to pursue their aspirations, choice of education stream, etc. without compromising on the quality of education.

But the education inflation poses a serious financial obstacle for parents to ensure a quality education without incurring substantial student debt. With proper financial planning and investment, parents can help their children to achieve their career goals without sacrificing their financial stability.

Investing in child gift mutual funds can help you to be prepared for the children’s future long-term financial requirements. Invest in these funds for long-term goals and ignore short-term market fluctuations.

Benefits of Child Mutual Fund plans

Children's gift mutual funds can help you in managing the rising cost of education due the ever-increasing education inflation.

Children's gift mutual funds by design force you have to stay invested long-term growth.

You can help your child to achieve his or her education goals with the help of these fund plans without having to sacrifice them due to financial limitations.

If you invest in a child mutual fund plan for your child’s future goals, then you won’t redeem or withdraw funds in a haste. You will stay invested and stick to it for the required duration. Thus, with these funds, your investment portfolio will have clear-cut segment for specific purpose.

Child mutual fund helps you plan child’s schooling, higher education, healthcare needs, wedding plans, home purchase plans, car purchase plans, etc.

Points to remember before buying Children's Gift Mutual Funds

Funds Strategy: Find out the investment strategy and asset allocation strategy employed in the fund. Check whether the funds are equity-oriented or debt-oriented to understand and evaluate the exposure to risk.

Lock-in: Most gift mutual funds offer an optional lock-in feature. This enables the investor to stay invested and also ensure that the investment will be protected till the child turns 18 years old.

Expense ratio: It is important to note the expense ratio, i.e., the overall expenses incurred in the fund. The exit load plays a very crucial role - this may impact the overall returns on the accumulated investment.

In a way, this is helpful to investors as they are encouraged to make long-term investments and in turn, these investors will be able to witness an extensive growth of their funds, which can be used for numerous purposes.

Documentation: In order to invest in a gift mutual fund, the investor should submit KYC documents of both, child and the investor, i.e., parent or guardian. While redeeming the fund and/ or when the child attains the age of maturity, additional KYC documents have to be submitted.

Returns: It is important to compare a Children's Gift Mutual Fund to other equity funds before investing in order to determine the opportunity cost. This aids an investor in selecting the best mutual fund strategy with the potential for large returns.

Conclusion: Children’s gift fund is tailor-made solution for parents to plan for child’s future financial needs and to help them build their careers. The long-term horizon of these funds ensure risk adjusted returns. The equity exposure is also helpful to tackle the ever-rising education costs.

As a type of hybrid funds, the most important advantage is the provision to set the funds as hybrid equity-oriented funds or hybrid debt-oriented funds.

An investor with higher risk appetite can opt for a hybrid equity-oriented fund, which invests a larger portion of its capital into equity schemes. It offers greater returns, associated with higher market risks.

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