Children’s Gift Funds are categorised under the ‘solutions oriented schemes’ regulated by the Securities and Exchange Board of India (SEBI). These funds are dedicated to fulfill the children’s future requirements such as Education,Wedding expenses, etc.. Hence, these Mutual Funds create long-term capital appreciation/income.
The classification of these Funds are as follows:
- Hybrid-Equity Oriented
- Hybrid-Debt Oriented
This categorisation is based upon equity and debt exposure of each fund. If a particular fund invests predominantly into equity (say 65%) and the remainder in debt securities, it is referred to as a Hybrid-Equity oriented scheme. On the other hand, if more than 60% of the corpus is invested in debt securities and the remaining into equity instruments, the fund is counted under Hybrid-Debt oriented funds.
Eligibility Criteria for Children’s Gift Funds
- Here is the eligibility criteria mandated to make investments in such funds-
- Investors must make investments in the name of the minor child
Parents or Legal Guardians are eligible to make investments in Children’s Gift Funds on behalf of their child
Benefits of investing into Children’s Gift Funds
Despite being a solution oriented fund type, Children’s Gift funds tend to benefit the investors with high valued returns and:
- Such funds incur long-term income/returns which apparently benefit their children in the long-run. Thus, these funds inculcate financial discipline over a long-term
- Allows investors to indulge into financial planning for their children which helps them in meeting their future goals and achieving aspirations
- These Mutual Funds are easy to monitor and allows the investors to customise the scheme whenever they want to invest in the same
- Investments in Children’s Gift Funds are substantial as the investors are discouraged to exit from the funds and make untimely redemptions
- Until and unless there is any redemption of units, no taxes are inferred. Also, the benefit of indexation further minimises the tax to almost nullifying the same
- With Children’s Gift Funds, different goals for different phases of the child’s future welfare are fulfilled. For example: Healthcare, Wedding, Purchase of property, Purchase of Vehicle etc.
What are points to be considered while investing?
There are certain ideas and key-points to be considered before making investments in Children’s Gift Funds-
- What is the objective or final goal?: It is very important to specify the objective of the investment in order to check the investment strategy. Whether it should be an equity-oriented or a debt-oriented fund depends upon the objective of the fund.
- Understanding the Lock-in period: These Mutual Funds are not suitable for investors seeking short-term investments because there is a lock-in period under which the investments are locked-in until the child reaches 18 years of age
- What is the exit-load and expense ratio?: To invest in any type of Mutual Funds, there are certain expenses incurred in the name of exit-load, expense ratio etc. Expense Ratio is a cost charged on a yearly basis whereas exit load is paid while redemption of the units. Always check and compare these costs before investing into any fund
- What are the documents required?: There are some KYC documents required to verify the details of the investor or the child. Additional KYC documents are required at the time of redemption of units or when the child attains the age of 18 years. Check and submit all the required documents to process the investments
- The return rate: Investors willing to incur high returns can invest in Equity-oriented funds. However, equity funds are riskier than debt-oriented funds. If the investor has no appetite for market risks, investments into debt-oriented funds are preferred.
Top 6 Children’s Gift Funds
Here is a list of the best children’s gift funds available for subscription-
| Name of the Fund | AUM (Crores) |
| HDFC Children’s Gift Fund | Rs.2909 |
| ICICI Prudential Child Care Fund- Gift Plan | Rs.622 |
| Axis Children’s Gift Fund | Rs.438 |
| UTI Children’s Career Fund | Rs.294 |
| SBI Magnum Children’s Benefit Fund | Rs.63 |
| LIC MF Children’s Gift Fund | Rs.13 |