When it comes to protecting your child's future, there can be no compromises. Every parent desires to provide their children with the best opportunities in terms of well-being, career, and financial security. Many of you must have set aside some money for the future of your children. But would that be enough until they are independent?
While most parents are busy fulfilling the basic necessities for their children, they often forget the long term future plans. But the unpleasant truth is that costs associated with healthcare, higher education, and marriage can cost a fortune. A parent's job has become harder as a result of micro and macroeconomic uncertainties like rising inflationary pressure, the weakening of the Indian rupee, and the possibility of a global recession.
The thought of getting some financial help when it comes to the child's healthcare, education, marriage, loans, etc., can be a big relief for any parent. Since there is no escape from inflation in education which is rising at around 10-12% at present, and 6-7% in healthcare. A robust investment plan for your child can help you deal with these future expenses without causing you any financial strain.
According to a report by National Sample Survey Office (NSSO), an average Indian household spends about Rs 12,000 - Rs 18,000 per month (varies depending on your location, i.e., Tier I or Tier II cities) on school fees and the situation is expected to worsen in future due to rising educational costs. An MBA course from a reputed college in India costs around Rs 10 lacs at present, which tends to double in the next 10 years, considering the rising inflation in education.
The below graph shows the future value of the current average monthly education expenditure of Rs 18,000 incurred by an Indian household, assuming an inflation rate of 12%.
Graph: Rising Education Expenditure in India
(This is only for illustration purpose)
This is just the cost of domestic education in India; if in case, your child wishes to opt for higher studies abroad, the cost will multiply. Consequently, the rising expenses are a reason of worry for many parents but do not fret. With this quick guide, you will be able to invest in the best investment plan for your children so that the growing inflation doesn't bother you, and your child can also enjoy a financially secured future.
There is no better time than the present to begin saving for your child's future. Investment takes time, and starting early allows more time for your money to increase in power due to compounding. With an early start, you can achieve your long-term financial goals in a manageable way. If there are any setbacks or adversaries, having more time will allow you to rebound and recover your returns. It will reduce your current monetary needs while still ensuring significant savings.
Why you should consider investing in mutual funds to secure your child's future?
Traditional saving instruments such as Bank fixed deposits, ULIPs and endowment policies offer a low interest rate. Additionally, the interest on bank deposits is entirely taxable according to the investor's income tax bracket. Therefore, the post-tax and inflation-adjusted returns on such instruments are essentially non-existent. Investment in mutual funds is a great way to start saving for your child's future since they help you choose the correct asset mix and provide a diversified portfolio that allows you to generate long-term returns that outperform inflation.
The pressure of rising inflation and economic uncertainity makes it increasingly important to invest in avenues such as mutual funds that have the potential to beat inflation. Given the nature of returns and the time horizon needed to plan for a child's future, equity mutual funds can be a good solution. Equity is the finest asset type for long-term strategies. Some equity funds with a solution-oriented focus are established specifically for children's future, and their long lock-in periods encourage long-term investing.
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Should you invest in Children's Funds for your child's future?
Children Funds are solution-oriented equity mutual funds. As mandated by SEBI, these funds have a lock-in period of 5 years or equal to the number of years left for your child before attaining the age of majority (i.e., 18 years), whichever is earlier. Parents can select a flexible lock-in period ranging from 5 years to the age of maturity of the child and as per their financial requirements.
Several well-known mutual fund houses like SBI Mutual Fund, Tata Mutual Fund, UTI Mutual Fund, Axis Mutual Fund and HDFC Mutual Fund etc., have launched child-specific mutual fund schemes. As of now, in total, 8 AMCs of such solution-oriented schemes. These funds are run as hybrid funds with both equity and debt allocation. Conservative investors may also choose a higher allocation to the debt portion in the portfolio of a scheme. Investment in these children's funds can be made depending on the time in hand and risk profile of the parent who is investing for his or her child.
These funds offer a balance of security and decent returns while reducing the downside risk, thanks to the hybrid portfolio. In addition, given the lock-in, you need to carefully assess your liquidity needs as to when you need money to fulfil your child's goal. Bear in mind you will not be able to switch to another worthy scheme if the solution-oriented scheme underperforms during the lock-in period. Fund houses usually charge a penalty if an investor decides to liquidate children's fund before its minimum lock-in period of 5 years.
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How to invest in Children's Funds?
For parents, Children's Funds are a tailor-made investment avenue that assists them in creating a financial backup to secure their children's future needs.
A systematic Investment Plan (SIP) is the best route for parents to invest in child-specific mutual fund schemes. SIPs help you invest regularly and systematically, reduce the shocks of a volatile equity market vide rupee-cost averaging, and simultaneously help you compound wealth over a long period. SIPs offer parents the benefit of investing small amounts at the initial stage and later increase the contribution towards these funds gradually as their income increases over time.
Once you invest in these children's funds as per your suitability and financial needs of your child, it is important to conduct a periodic review of your portfolio (at least once a year) to make necessary changes/adjustments when required and keep track of the growth of the investments for your child's future. You must add your child as a nominee for all your investments towards their future.
Which are the best Children's Funds to invest in 2023?
Considering the wide variety of options available, selecting the best suitable mutual fund schemes for investing towards your child's future may be a daunting task for many investors or parents. Thus, to ease your search, at PersonalFN we have identified 3 best child-specific mutual fund schemes to plan for your child's future needs in 2023.
Mutual fund recommendations by PersonalFN go through our stringent process, where they are tested under 5 essential parameters, viz. Systems and Process, Market Cycle Performance, Asset Management Style, Risk-reward Ratios and Performance Track Record. This matrix is specially developed by the in-house research team at PersonalFN, and we believe it's one of the finest and most reliable fund selection methodologies in the industry today, exhibiting successful results over time!
Here is the list of the best Children's funds to invest in 2023:
Table: Best Children Mutual Funds in India to Invest in 2023
| Scheme Name |
Absolute (%) |
CAGR (%) |
Risk Ratios |
| 1 year |
3 years |
5 years |
7 years |
Std. Deviation |
Sharpe Ratio |
Sortino |
| HDFC Children's Gift Fund |
8.77 |
17.45 |
11.94 |
14.12 |
17.44 |
0.23 |
0.33 |
| Axis Children's Gift Fund |
-4.81 |
11.89 |
10.47 |
11.43 |
17.15 |
0.14 |
0.20 |
| UTI-CCF- Investment Plan |
-1.03 |
16.17 |
10.36 |
13.55 |
22.69 |
0.18 |
0.26 |
| Category Average |
2.74 |
13.39 |
9.43 |
11.53 |
17.03 |
0.20 |
0.34 |
| Benchmark - NIFTY 500 TRI |
5.94 |
17.14 |
11.59 |
14.06 |
23.19 |
0.19 |
0.27 |
(Data as of December 28, 2022)
(Source: ACE MF, PersonalFN Research)
Past performance is not an indicator of future returns
What Care Should You Take When Selecting Children’s Funds for 2023
Before investing in Children Funds, you need to analyse the various parameters of the scheme and not only the past performance. The risk and volatility related to mutual fund investment can be quantified by analysing various risk ratios.
The standard deviation aids in quantifying a fund's volatility level. When prices move wildly in the market, the standard deviation is high, meaning the investment is risky, and funds with a low standard deviation may be considered less prone to volatility, whereas the Sharpe ratio of a mutual fund reveals its potential risk-adjusted returns. The Sortino ratio is a variation of the Sharpe ratio, which differentiates the intensified volatility from the overall volatility of a fund. Apart from this one change, there is not much difference between Sharpe and Sortino Ratio. The higher the better for the fund.
#1 - HDFC Children's Gift Fund
HDFC Children's Gift Fund is a solution-oriented hybrid fund with an asset allocation of 65:35 towards equity and debt, respectively. This helps investors benefit from the upside potential of equities whilst the debt portion of the portfolio offers stability.
This fund has registered an excellent performance track record over the past few years. It has outperformed it's category peers with a noticeable margin and generated returns higher than the benchmark indices over the long term. Furthermore, the scheme has delivered superior risk-adjusted returns to investors.
(Data as on November 30, 2022)
(Source: PersonalFN Research)
HDFC Children's Gift Fund provides a well-diversified portfolio of quality stocks across sectors and market capitalisation. The hybrid approach of the scheme helps take advantage of the various market cycles and enhances the possibility of riding out turbulent market conditions.
#2 - Axis Children's Gift Fund
Axis Children's Gift Fund has been in existence for nearly 7 years now, and it is a aggressive hybrid fund that invests a majority of its assets in equities. Aggressive Hybrid Funds have generated consistent returns across long-term investment horizons. Despite having a short time span, the fund has established a superior track record and gained the traction of investors.
(Data as on November 30, 2022)
(Source: PersonalFN Research)
The fund has stood strong against its peers and though not outperform but tried to be at par with the category average and benchmark returns across time periods. The scheme allows flexibility to the fund manager to invest across market caps and sectors and maintain a diversified portfolio of high-growth companies.
Axis Children's Fund belongs to a process-driven fund house that follows a rigorous investment approach. Over the long-term horizon of 5 years and 7 years, the fund has generated significant risk-adjusted returns for its investors. Investors with a long investment horizon seeking wider exposure to equities may consider investing in this scheme to build the corpus for their child's future needs.
#3 - UTI CCF - Investment Plan
UTI CCF - Investment Plan belongs to one of the oldest and largest fund houses in the industry - UTI Mutual Fund. The scheme is a highly aggressive hybrid scheme holding majority or all of its assets in equities only, which as an asset class, is considered to be highly volatile in nature.
Over the last few years, the scheme has delivered returns closer to the benchmark index and has beaten some of its category peers by a noticeable margin. However, do note that the scheme is not diversified across asset classes like debt to lower the downside risk; it is skewed towards equities which are highly risky. This is why we would recommend investing in this fund only if you have a high-risk appetite and an investment horizon of at least 5-7 years.
(Data as on November 30, 2022)
(Source: PersonalFN Research)
What is the Tax Implication for Children's Funds?
Tax is levied only when the funds mature and the amount is disbursed. The charges are also minimised to maximise the benefits of indexation. However, the interest earned on these children's funds is tax exempted.
Children Funds are eligible for exemption under Section 80C of the Income Tax Act of 1961. Parents can avail exemption of up to Rs 1.5 lacs if they invest in these child-specific mutual fund schemes.
This completes our list of best children fund's to invest in 2023. However, many individuals find it difficult to choose suitable mutual fund schemes to invest in towards their financial goals due to a lack of market knowledge and concerns about high market volatility driven by dynamic market conditions.
PersonalFN's SMART Fund Explorer can help you plan your mutual fund investments smartly to achieve your financial goals. It can help you plan for your child's future and their financial needs like higher education, wedding expenses etc., by offering a list of recommended mutual funds. It will include not only solution-oriented schemes but also other suitable diversified equity schemes based on your risk profile and the time required to reach your child-specific goals. Follow these 4 simple steps:
Step #1 - Select the type of goal (buying a house, child's education, child's marriage, car, retirement, etc.)
Step #2 - Determine a suitable time frame for achieving these goals
Step #3 - Insert the amount of money that you are willing to invest towards your goal
Step #4 - Choose the type of investment (lumpsum or SIP)
PersonalFN's SMART Fund Explorer considering the details entered, provides you with a decent expected rate of return on the investments and the value of an investment at the target date. It will offer you with two mutual funds investment options (A & B) that you can choose based on your risk profile. Further, you can get instant access to the list of the best suitable mutual fund schemes as per your selected plan by enrolling to PersonalFN's SMART Fund Explorer.
This is an opportunity to begin smart investment planning for the future of your children with the help of recommended list of mutual funds by our research team. So what are you waiting for? Click on the key to accomplishing your financial goals with PersonalFN's SMART Fund Explorer.
Warm Regards,
Mitali Dhoke
Research Analyst