What is a Children's Gift Mutual Fund?

Investing for your children is not just about securing funds for their financial future but an investment in their dreams and ambitions. It is a long-term commitment to nurture their aspirations by ensuring they have the means to achieve their life goals.
 

While investing is a fair choice, getting it right is certainly the most crucial decision. And that is where the children’s gift mutual fund stands as a perfect choice.
 

The children’s gift fund provides a structured approach to building a financial plan to help your children achieve their objectives at different life stages.
 

Here is an insight into children’s gift mutual funds and everything you need to know!

What is a Children's Gift Mutual Fund?

A children's gift mutual fund is a mutual fund scheme explicitly designed to fund the requirements of your children at different stages of their life. The returns can help you manage the expenses related to their education, marriage, etc.

The children's gift mutual funds fall under balanced or hybrid mutual funds. Furthermore, it is a long-term investment and can be redeemed when your children attain 18 years of age.
 

Investing in such mutual funds and child plans can help you organise your finances for better planning and financial security.
 

Smart investing entails effective research, assessment of risk tolerance, and diversifying the portfolio for better returns, mitigating potential risks.

Eligibility Criteria

• The children’s mutual fund India can be purchased only on behalf of a minor child.
• Parents or legal guardians of the minor child can purchase and invest in it for the long term.

Classification of Children’s Gift Mutual Funds  

The children's gift mutual funds, hybrid funds, are categorised as hybrid debt-oriented and hybrid equity-oriented funds. It is classified based on the proportion of investment made in the equity and debt fund options².
 

• Hybrid equity-oriented funds - The equity exposure is more than 60% in the fund.
  
  
• Hybrid debt-oriented funds - The debt exposure is more than 60% in the fund.

Why is it Important to Invest in a Children’s Gift Mutual Fund?  
 

• Financial Security
  

As you navigate through different stages of your life, your financial condition and commitments keep changing.

With the change in such life scenarios, managing funds for your children's requirements, such as education, marriage, etc., can get challenging. Investing in a children's gift fund can help secure funds to satisfy their needs.
 

• Inflationary Pressures

With the rising inflation rate, your children's tuition fees can increase to an extent that may not be affordable over the long term. Furthermore, it can also increase the interest rates of education loans, making it difficult to avail of and benefit from them.

With the power of compounding, you can increase the value of your investment in the mutual fund child plan, helping you to afford the increasing educational costs.

Factors to Consider Before Investing in a Children's Gift Mutual Fund
 

• Fund's Objective

Find the fund's asset allocation, investment strategy, and objective before choosing the children gift fund. It is important to analyse the asset allocation as it helps you identify if you can bear the associated risks long term to make a well-informed decision.
 

• Expense Ratio and Exit Load

The expense ratio refers to the per-unit cost you pay your Asset Management Company (AMC) annually for managing your investment. The exit load refers to the fee charged by the AMC when you redeem the benefits before the specified period.

It is essential to be aware of these costs as you need to bear them during your long-term investment and while exiting for specific reasons.
 

• Lock-in Period

Children's gift mutual funds will have a lock-in period until your children attain 18 years of age. Therefore, when you want to invest in a mutual fund child plan, you need to plan it for the long term.

• Rate of Return

Based on your risk appetite, you can choose between the hybrid debt-oriented and the equity-oriented fund options.

If you are risk-averse and expecting a higher rate of investment, you can choose the hybrid equity-oriented fund. And if you are a conservative investor, a hybrid debt-oriented fund will be a suitable option.
 

• Documentation

When applying for the children's gift mutual fund, you need to submit documents as proof of evidence to state that you are the minor child's parent or legal guardian. During redemption, you must provide further documents about your child, such as proof of evidence of their age, to avail of the financial benefits.

Benefits of Children's Gift Mutual Funds
 

• Helps Your Children Achieve Their Objectives

With a children gift fund, you can invest for the long term to secure finances for helping your children accomplish their financial objectives at different life stages.
 

• Helps You Plan for Your Child's Life Events

You can invest in the children's gift mutual fund to plan for your child's life events, such as their schooling, higher education, etc., and satisfy their needs timely.
 

• Instils a Financial Discipline

When you start investing in the children's gift mutual funds regularly, you will develop the discipline of investing funds for your children's benefit in the long term.

• Create Tailor-Made Solutions

When you purchase a children's gift fund, you can choose between the hybrid debt-oriented and the hybrid equity-oriented schemes based on your financial condition and risk appetite to stay invested consistently through the investment period.

Conclusion

Children’s gift mutual fund is a strategic investment structured delicately for the future of your loved ones. It helps you secure funds for your children to navigate through the different stages of their life. By customising the solution based on your risk appetite and developing the discipline to invest long-term, you can safeguard your child’s financial future for a brighter life ahead.