Children's Mutual Fund has a lock-in period of five years and typically follows an aggressive hybrid investing strategy. Read on to learn more.
Every parent dreams of a promising future for their children, striving to offer them the best opportunities. This aspiration needs parents to invest not just their time and effort but also their financial resources to secure their kids' future. If you have this aspiration, mutual funds can provide solutions tailored to your needs. Amidst a multitude of mutual funds, certain schemes, such as solution-oriented Children's Mutual Funds, are tailored to address specific objectives.
These solution-oriented mutual funds aim to create wealth for children's education or marriage. As per the categorization set by the Securities and Exchange Board of India (Sebi), they come with a mandatory lock-in period of five years, or until the child reaches maturity, whichever occurs first. The maturity age is typically defined as 18 years.
These funds typically belong to the open-ended hybrid scheme category, where they primarily invest in both equity and debt assets within their portfolios. Children's funds include "balanced funds - equity-oriented" as they allocate 35 per cent of their holdings to debt and maintain an average equity exposure of over 65 per cent. However, most funds adopt an aggressive hybrid strategy with over 75 per cent invested in equity. This diversity provides a range of investment options to suit your investment horizon and risk tolerance.
The management of these funds typically adopts a passive approach, aligning their performance with benchmark indices. As per data from the Association of Mutual Funds in India (AMFI), children's solution-oriented funds collectively manage around Rs 16,683 crore in investor capital.
The children's mutual funds category clocked a 1-year average return of 12.19 per cent, a 3-year return of 19.36 per cent and a 5-year return of 12.69 per cent.
Within this category, standout performers are SBI Magnum Children's Benefit Fund - Investment Plan with a 1-year return of 20.36 per cent and a 3-year return of 42.92 per cent.
HDFC Children's Gift Fund is also a top performer with 1-Year Return of 17.49 per cent, 3-Year Return of 22.06 per cent and 5-Year Return of 15.99 per cent.
These top-performing funds, like many other funds in this category, have leaned toward an aggressive hybrid approach. As per value research, while HDFC Fund followed an asset allocation of 64.91 per cent equity and 28.41 per cent debt, SBI's Children's Fund invested 80.52 per cent equity and 0.81 per cent debt.
It is worth noting that the broader category of aggressive hybrid funds, which share a similar investment philosophy, has also posted similar returns. Over one year, these funds have provided an average return of 12.36 per cent, while their 3-year return stands at 18.22 per cent and their 5-year return at 14.02 per cent. This is notable because few funds in the children's fund category follow a less aggressive approach, a balanced equity approach with around 60 to 65 per cent equity.
Investors should carefully align their financial goals and risk tolerance before selecting a fund that aligns with their investment objectives.