Should you invest in child-focused mutual fund schemes for meeting your child's future objectives? | Mint
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Business News/ Money / Personal Finance/  Should you invest in child-focused mutual fund schemes for meeting your child's future objectives?
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Should you invest in child-focused mutual fund schemes for meeting your child's future objectives?

A cursory glance at the returns reveals that numerous other funds have outperformed children’s funds in terms of returns. Many mutual funds consistently generate returns exceeding 12 per cent or surpassing inflation over the long term.

Take time to decide finances for your children's future. (AP)Premium
Take time to decide finances for your children's future. (AP)

The introduction of Union Mutual Fund’s children’s fund has reignited discussions about the legitimacy of solution-oriented mutual fund schemes and the validity of including them in one’s investment portfolio.

The justification for investing in children’s funds continues to be a subject of ongoing discussion. Advocates for these schemes contend that they provide a convenient and potentially lucrative means of saving for particular financial objectives, such as a child’s education. Additionally, they emphasise that the lock-in periods associated with these funds can assist investors in maintaining discipline and avoiding impulsive withdrawals.

Critics of solution-oriented mutual funds assert that they frequently come with higher costs compared to other mutual fund types, and their imposed lock-in periods can be constraining. They also contend that investors might find greater benefit in allocating their investments across a diversified portfolio of mutual funds rather than putting their funds into a single solution-oriented fund.

Determining the value of the attention garnered by children’s funds is a nuanced inquiry with no straightforward solution. The emphasis should be on engaging in investments that can outpace inflation, which is why numerous individuals turn to mutual funds to strategically secure sufficient finances for their children’s future. Naturally, numerous factors, including individual financial objectives, risk tolerance, and investment timeframe need consideration. Nevertheless, the question persists: Do children’s funds truly merit the extensive attention they receive?

Assessing the performance of a mutual fund over an extended period, such as a decade or more, can provide insights into its stability and dependability. Through a comparison of the historical returns of mutual funds with alternative investment choices, you can make well-informed decisions regarding the allocation of your funds to meet long-term financial goals, such as funding your children’s education or marriage.

The table below demonstrates fund returns and compares them across diverse investment opportunities, facilitating informed decision-making.

Type of investment

Name of the investment

10-year returns 

(in %)

Monthly investment 

(in Rs)

Investment tenure 

(in years)

Value of the investment

(in Rs)

Children’s Fund

HDFC Children’s Gift Fund

16.82

12, 500

25

5,79,58,154

ICICI Prudential Child Care Fund

15.20

12, 500

25

4,26,18,947

Tata Young Citizens Fund

13.84

12, 500

25

3,31,01,235

      
Large-cap funds

Mirae Asset Large Cap Fund

17.54

12, 500

25

6,65,79,099

ICICI Prudential Bluechip Fund

16.34

12, 500

25

5,28,76,142

Kotak Bluechip Fund

15.95

12, 500

25

4,90,97,322

      

Focused funds

Nippon India Focused Equity Fund

21.25

12, 500

25

13,83,90,499

 

Quant Focused Fund

20.61

12, 500

25

12,17,52,967

Franklin India Focused Equity Fund

19.59

12, 500

25

9,94,22,798

      
Mid-cap funds

Kotak Emerging Equity Fund

24.40

12, 500

25

26,24,39,503

Edelweiss Mid Cap Fund

23.95

12, 500

25

23,92,98,268

Tata Mid Cap Growth Fund

22.41

12, 500

25

17,48,59,509

      
Small-cap funds

Nippon India Small Cap Fund

29.40

12, 500

25

74,39,43,029

SBI Small Cap Fund

28.29

12, 500

25

58,89,50,744

DSP Small Cap Fund

26.03

12, 500

25

36,74,48,915

      
Value Funds

HSBC Value Fund

21.59

12, 500

25

14,81,77,306

JM Value Fund

20.57

12, 500

25

12,07,85,068

ICICI Prudential Value Discovery Fund

20.27

12, 500

25

11,37,77,343

      
Source: AMFI (As of November 28, 2023)

A cursory glance at the returns reveals that numerous other funds have outperformed children’s funds in terms of returns. Given that many mutual funds consistently generate returns exceeding 12 per cent or surpassing inflation over the long term, individuals aiming to accumulate a substantial corpus may find potential opportunities beyond children’s funds. Despite the mutual fund industry’s endorsement of children’s funds for their perceived security and balanced risk-reward profile, alternative options may warrant consideration.

The genuine worry of education inflation underscores the significance of initiating early plans for your child’s education. Even with a conservative estimate, considering half of the anticipated inflation rate, the expenses for a graduate course are projected to double in the next 15-20 years. Consequently, parents of newborns should commence savings early to accumulate sufficient funds, ensuring their children can complete their graduation without financial constraints.

This could clarify the importance of exercising caution when selecting investments, particularly those designated for funding children’s education in the long term. While other types of funds might outperform children’s funds in terms of returns, the significant factor contributing to the increasing popularity of children-focused funds is the associated lock-in period. The lock-in period is designed to discourage short-term exits. While it may seem restrictive, on the flip side, it serves as a deterrent against impulsive exits by investors experiencing even minor financial stress.

Targeted at aiding investors in attaining particular financial objectives like children’s education or retirement, solution-oriented mutual funds usually allocate investments across a blend of stocks and bonds. The primary objective is to achieve sustained long-term growth while prudently managing risks. Nevertheless, the nomenclature alone should not compel investors to allocate their earnings to these funds.

Mutual fund investments can cater to a diverse range of goals, making it unwise to rely exclusively on a singular type of mutual fund tied to a specific theme or sector. The key concept should revolve around optimising investments to enhance returns, a strategy contingent on various factors.

The decision of whether or not to invest is influenced by numerous factors, including your grasp of personal finance, risk tolerance, and commitment to sticking with your investment choices.

 

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Published: 05 Dec 2023, 04:26 PM IST
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