Investments in mutual funds are regulated under the Securities & Exchange Board of India (SEBI), which allows parents or guardians to open an account for their children. It is suggested to start investing as early as possible to take advantage of the power of compounding, helping to build a strong financial base for the child. Mutual Funds are considered to be investment pools, where funds are collected from multiple investors & invested in a diversified portfolio of assets. The investors are supposed to share the profits & losses of the whole fund equally. Due to this shared ownership, these funds are known as “Mutual Funds”.
This plan is a combination of financial security & growth potential, which ensures the children’s educational, marriage, or career-related expenses are well-managed. There are two types of mutual fund child plans, namely ULIPs & child Plans. These plans involve investment in securities such as debts, equities, bonds, etc. The main objective of this plan is to ensure financial security over a period of time to use the funds for children’s education, marriage, travel, coaching, etc.
Features of a Mutual Fund Child Plan
A child’s mutual fund acts as an effective Child Saving Plan, basically well-crafted to help parents secure financially towards the future of their child. Let us now understand the salient features:
- Disciplined Savings
These plans help parents to save funds for bigger milestones, thus allowing disciplined investments, such as from SIPs.
- High Returns Potential
These plans invest funds in market-linked securities, such as equity funds, letting investors generate higher returns.
- Goal-oriented Investment
These plans help investors achieve the financial objectives of their children by providing a disciplined approach towards investments.
- Professional Fund Management
Under this plan, the professional team helps in decision-making on the investor’s behalf. They have expertise in managing these plans, thus allowing investors to switch between the funds depending on the market conditions to get higher returns.
- Diversification
This plan suggests investing funds in a wide range of securities, including bonds, stocks, other market instruments, etc. This is because it spreads risk & enhances returns by investing in multiple asset classes.
- Flexibility
This plan offers flexibility in terms of policy tenure, investment amount, premium payment mode, & maturity returns payout alternatives.
- Systematic Investment Plans (SIPs)
These plans allow parents to invest a certain fixed amount of funds in SIPs regularly at some specific interval, i.e., monthly, quarterly, etc.
- Systematic Withdrawal Plans (SWPs)
These plans allow investors to withdraw a predetermined amount of funds regularly from the corpus funds accumulated.
- Tax Benefits
These plans offer a tax deduction on the amount of premium paid u/s 80C, together with a tax exemption on the death benefits received u/s 10(10D).
Difference between Mutual Funds & Mutual Fund Child Plans
Provided are the differences between mutual funds & mutual funds for children:
| Basis of Difference | Mutual Funds | Mutual Fund Child Plans |
| Objective | These funds help generate returns depending on the performance of the securities. | These plans include savings & investing funds to secure & fulfil the financial needs of your child. |
| Investment Objective | The main goal is income generation or wealth creation in the long run, depending on the investment plan. | The main aim is to accumulate funds till the time children attain majority & require funds for their higher education or any other milestone. Additionally, an investor also looks for capital appreciation. |
| Lock-in Period | They do not have any lock-in period, except for ELSS. | Some of the child plans have a lock-in period. |
| Insurance Component | They do not offer any insurance coverage. | These plans offer insurance coverage, ensuring the future requirements of your child are fulfilled in the absence of the investor. |
Steps to Invest in Mutual Funds for Children
By investing your funds in mutual funds for your children, you can build a strong Child Education Plan, which will help you support the future educational objectives of your children. Let us understand the steps to get started:
Step 1: Assess your financial goals
Identify your financial objective in terms of your child’s higher education, marriage, purchase of property, retirement, etc. The selection of a mutual fund will have an effect on the policy tenure & the nature of the investment.
Step 2: Understand your risk tolerance
Have an understanding of your risk tolerance level in terms of whether you are looking for higher or stable returns, which will make it easier to select the type of funds.
Step 3: Research & select Mutual Funds
Research about the available mutual funds depending on the past performance, expense ratio, fund manager’s past record, investment strategy, etc. To conduct research, an investor can use either online or offline platforms.
Step 4: Decide the investment mode
Decide upon the mode of investment, i.e. lump sum or systematic investment plan (SIP). In the normal course, it is suggested to invest in SIPs as they involve regular investments, which helps manage funds & averages out the investment costs.
Step 5: Complete the KYC formalities
Complete the KYC formalities, which include identity proof, address proof, & any other relevant documentation, if any.
Step 6: Invest through a reliable platform
The investment in mutual funds can be done through financial advisors, banks, online investment websites, etc. Invest through the most reliable platform that best aligns with your investment objectives.
Step 7: Monitor & review regularly
An investor should monitor the investments made regularly to stay updated about the market scenario. Also, review the investments made to ensure they are well aligned with the investment objectives & risk appetite.
Conclusion
Mutual fund child plans are considered to be a smarter option to build your child’s future. This plan helps combine the growth potential with stable returns, which makes this plan an appropriate choice for parents. Though this plan has some risks involved, if investments are started early, it will help funds grow & achieve long-term objectives. Advanced planning ensures a secure financial future, even in your absence.
