Children Gift Mutual Fund – Concept, Purpose, Benefits, Features & moreLast Updated Date: Aug 31, 2023
Nowadays, smart parents are increasingly investing in Children Gift Mutual funds. But why you should consider it? What does this mutual fund scheme have to offer you? Know right over here.
Bank FDs are a traditional approach for parents who want to pile up sufficient funds for their children’s future. Though, for many of us, it isn’t the most-admired option.
Bank Fixed Deposit is probably the safest investment plan; still, the lower interest rate doesn’t make it that much favourable.
If you also share the same opinion about FDs, then, of course, you are going to love Children Gift Mutual fund plan.
What are Children Gift Mutual Funds?
Children Gift Mutual Funds, also known as Children’s Fund, is a popular mutual fund scheme for children.
Parents who want to feel secure about the future of their children can tap into this investment option. The rising education cost and daily expenses are a major concern for parents.
By the end of every month, the parents meet with an added figure in their daily expense list. However, it has become a usual thing.
Because the economy is growing, prices are rising. But if your income is still limited to those small figures, it can raise concern for you.
Your lower income can become an inviting factor for debt. Especially, if you want your kid to pursue higher education from the top-notch universities, take an ideal step right away.
Normally, people invest directly in debt and equity components as they believe this will provide them with a higher return.
But we can’t ignore that these investment options come at a certain degree of risk. A standard investment plan is more prone to market volatility risk that makes them risky.
Children Gift Mutual Funds are relatively safe. Market volatility and price fluctuations don’t affect these mutual fund schemes.
These investment plans come with a 5 years lock-in period. Suppose your kid is 13 years old. After 5 years, when he’ll become an adult he can use these funds.
However, the lock-in period can be extended further based on your goals. You can’t withdraw these funds until the policy matures.
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Purpose of investing in Children Gift Funds
Children Gift Mutual Funds lock sufficient funds for children. So in future, he/she can pay his fees for higher education.
Even though they want to launch a startup or they aspire to purchase something. In future, this fund will be available there to support your child’s monetary planning.
Children Gift Mutual Funds consist of a secure portfolio. Neither market volatility nor ups and downs in prices can affect the investment in these portfolios.
Thereby, these funds provide assured returns to the investors. That’s why this mutual fund scheme is considered to be the safest investment plan for parents who often care for their children’s life after them.
Of course, you’re playing with your family’s future if you aren’t securing sufficient fund for them.
Early financial planning becomes essential so that your kids can continue their education and achieve their goal after you.
Children Mutual Fund allows you to select specific lock-in period that starts from 5 years. Until the child becomes 18 years old, no one can withdraw funds from this scheme.
But if you do, you’ll invite a 4-5 % penalty. You can also view it as a long-term investment alternative with slightly different terms and conditions.
Though, overall nature of these funds is quite similar to the hybrid portfolio. These funds invest in the mix of debt and equity components to ensure risk-adjusted returns.
Find details of other Types of Funds here
Should you Invest in Children Gift Mutual Fund Scheme?
Children Gift Mutual fund scheme is a highly recommend scheme for every parent. Every mom and dad should consider this mutual fund scheme.
Rather than FDs, Children Mutual funds are a way better option to pile up sufficient fund for their future.
After the end of these funds’ maturity period, you can use this fund for your child’s marriage, education, and much more.
Though other mutual funds allow you to withdraw the funds from the account, but these don’t. If you do, you will be inviting a 4-5% penalty on redemption before the maturity period.
Hence, you should think about investing in these funds only if you are serious about it. For the next 5 years, you can’t withdraw the money from these funds.
Also, if you want to get the full benefit of this mutual fund scheme, make sure you park money in it for the complete lock-in period.
You’ll have to meet some KYC requirement for the application as asked by the respective Fund house.
Benefits of Children Gift Mutual Funds
The list of benefits associated with Children Gift Mutual Fund Plan is as follows-
Fulfils your Child’s Dreams
If your child is talented, and he has a goal of becoming something in his life. For example- he wants to go abroad to shine his career or join an international sports academy.
No wonder, at every step, he will seek financial support from his parents.
At such situations, you prove yourself as the best parent because you’ll be supporting your child’s dream while fulfilling his fund requirement at the most precious moment of his life.
Ensures Protection in Unforeseen Circumstances
Even though you live no more, your child will be able to fulfill his dreams. The lack of funds will not be an excuse for them.
For instance, in the case of parent’s death, a child can get a full sum insured amount, and these funds will continue to pay the expenses for your child’s higher education.
So their children can complete their educational goal without any hassle; parents are increasingly investing in these funds.
If your kid is small, of course, his fees aren’t too much. But as he’ll grow older, his educational expenses will definitely hike up.
So, invest in children mutual funds so that your lower income doesn’t become a barrier in his/her further education journey.
The interest you’ll get on your investment in such plans will pile up sufficient fund for your kid so that he/she can flexibly pay his school, university or college fee.
Children Gift Mutual Funds also come with further add-on plans. Such as you can opt the life insurance that makes these funds more helpful for a child.
During unfortunate situations, if your kid requires a medical emergency, you can realize the benefit of such add-on plans. However, the add-on options vary from one fund house to another.
However, it’s very obvious that you can’t withdraw money from your funds before the lock-in period and if you do you’ll invite 4 to 5% penalty on redemption.
However, few mutual funds plans allow you to withdraw half amount from your funds after accepting related terms and conditions.
For example- you can withdraw half amount from these funds after completing 30 months to your mutual fund plan (half of the lock-in period).
Avoid Capital Loss
Children Gift Mutual Funds are the safest investment plan as these funds are less prone to Market Fluctuations. You can confidently invest your money in it without the fear of capital loss.
These funds allocate investment across different asset classes. That’s why most parents invest a lump sum amount in these mutual fund plans without any hitch.
Even though you don’t carry a surplus amount in your account, you can go with SIP plan as well.
Find details of all types of Debt Funds here
Things to Consider before Investing in Children Gift Funds
Investment in Children Gift Mutual Funds can’t be a wrong decision. Still, if you want to initiate investment in these funds, consider the following points –
First, get an insight into your ultimate objective. At what age your child will need a good amount of fund?
What is the purpose behind the investment? If you’re clear on every point, you can proceed with the investment decision in Mutual Funds.
The Expense Ratio
Try to move ahead with a well-informed decision. Many fund houses charge high on such investment plans. All these charges can easily create disturbance in your mind.
Apart from that, note down the tax-related things. At the end of the maturity period, which things will be deducted from the final amount, get a clear insight into every concept.
Every Mutual Fund Company’s policies can vary. Usually, the company offers a minimum lock-in period of five years only.
But it can be extended too based on the fund houses own policies on such mutual fund investment plans.
Documentation is another critical factor. If you want to apply in the mutual fund scheme, bring all the required documents as asked by the fund house.
Before you go through paperwork, read every term and condition.
Rate of Return
You can’t skip this point. An overview of the rate of return you’ll get from a specific investment plan can provide you with an idea over the sum-total of the amount you’ll get after a couple of years.
Higher returns will pile up a good amount of wealth for the future.
Children Gift Mutual Funds – Conclusion
Children Gift Mutual Fund deserves to make a valuable position in your financial-planning list for your children.
This mutual fund scheme means a lot for any parent who is concerned about his children’s life after him.
Amid this mushrooming economy, it sometimes becomes hard to cope with the daily expenses. But as a responsible parent, you can’t let it appear to be a barrier to your child’s future.
That’s how the Children Gift Mutual Funds prove to be an extremely critical thing. Invest in these funds and earn an attractive return.
Once your child becomes mature, he can use this fund for his study purpose, marriage purpose, for starting up a business etc.
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