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    Childrens Fund

    Invest in the best childrens funds recommended by Scripbox that are algorithmically selected that best suit your needs

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    Fund NameScripbox Opinion
    3Y CAGR
    Till Date CAGR

    Aditya Birla Sun Life Bal Bhavishya Yojna fund (G)

    -

    14.3%

    16.6%

    4.6%

    7.6%

    2.0%

    12.2%

    4.5%

    7.6%

    13.0%

    9.7%

    -

    15.9%

    13.1%

    15.9%

    13.1%

    11.3%

    15.9%

    -

    14.3%

    -

    14.3%

    15.9%

    13.1%

    15.9%

    13.1%

    15.9%

    13.1%

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    My First Crore

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    Retire Confidently

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    Child Education

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    How does Scripbox rate funds?

    Proprietary 4-step system to rate mutual funds

    We use a proprietary system to rate mutual funds and based on that make a recommendation or rate the fund as top ranked.

    What Scripbox recommendations mean?
    Scripbox algorithm recommends 2-4 funds for investment for an investment asset class such as large cap, diversified, liquid etc. When you invest for an objective, the algorithm suggests the appropriate asset class and funds.
    Track Record

    Track Record

    We look at consistent and long historical performance for our analysis.

    Fund Size

    Fund Size

    We look at the size of the fund with respect to other funds in the category. Larger funds are preferred.

    Sub-asset Class View

    Sub-asset Class View

    We check if the sub-category of the fund is recommended by us.

    Fund Performance

    Fund Performance

    Consistency of performance over various tenures is analysed for a relative performance stack.

    Track Record

    Track Record

    We look at consistent and long historical performance for our analysis.

    Fund Size

    Fund Size

    We look at the size of the fund with respect to other funds in the category. Larger funds are preferred.

    Impact of Interest Rates

    Impact of Interest Rates

    We check the relative interest rate risk of the sub-category of the fund. Lower the better.

    Credit Attractiveness

    Credit Attractiveness

    We check the credit quality of the underlying instruments present in the fund. Higher the better.

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    What are Children Funds?

    Children’s fund is an open-ended mutual fund available for investment for children. This fund has a mandatory lock-in period of 5 years or until the child becomes a major, whichever is earlier. It is a mutual fund for child-specific goals like meeting their educational expenses, relocation, or other essential expenses.

    Children’s funds invest in both equity and debt securities. Investors can choose for a higher equity or higher debt based on their investment horizon and understanding of risk. The tenure of the mutual fund is a minimum of 5 years and can be extended up to the time the child has attained majority.

    Investors cannot withdraw the money invested in this fund prematurely, hence making it an idle long-term investment. This will also give time for the portfolio to ride market ups and downs and stabilise the returns. Also, suppose the investment is withdrawn prematurely before the minimum lock-in period. In that case, the fund houses charge up to a 4% penalty as exit load.

    Also, parents investing in children’s mutual fund plans can avail an exemption up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. Moreover, the interest earned from these funds is exempt from tax. However, upon maturity, the returns are taxable.

    Once the child becomes an adult, they can complete their KYC and gain access to the funds. Also, they will have the flexibility and authorization to use the money for building their careers.

    Advantages of Investing in Children Funds

    Following are the advantages of investing in Children Funds:

    Small Savings

    Child plans are good investment schemes that help parents to start saving for their child’s future. Doing small regular investments help in meeting long term expenses of a child easily. For example, higher education, marriage, etc. Also, having such a fund will encourage children to pursue their aspirations without having to compromise due to financial limitations. 

    Asset Allocation

    Children funds are a type of hybrid funds or balanced funds. Therefore, parents or guardians can opt for either an equity-oriented fund or a debt-oriented fund. On the basis of the willingness to undertake the risk, one can choose a suitable asset allocation.

    Multiple Goals

    Children’s plans allow parents or guardians to allot different funds for appropriate goals. As a result, the investment portfolio will have well-segregated investments—for example, child’s schooling, higher education, marriage, healthcare needs, etc. Different goals for different phases of life can be attained through children’s mutual funds.

    Tax Benefit

    Debt-based child plans are tax efficient. Investments up to INR 1,50,000 per annum in children plans qualify for tax exemption under Section 80C of the Income Tax Act, 1961. Also, the annual exemption of INR 1,500 per child as per Section 10 (32) of the Income Tax Act, 1961 is allowed if the interest income exceeds INR 6,500 annually. Furthermore, parents of children suffering from any disability qualify for additional tax benefits if they apply for children’s funds. Also, taxes payable during redemption will be less due to the indexation benefit.

    Lock-in Period

    Most children’s funds have a lock-in period of five years. However, parents or guardians can voluntarily increase the lock-in period until the child attains maturity, i.e., 18 years. The Lock-in period ensures the investors don’t withdraw their investments. Also, for child plans, long durations help in meeting the child expenses.

    High Returns

    Child funds can be either equity-oriented or debt-oriented. Long term investments in equity-oriented schemes have the capacity to generate significant returns. Therefore, investors who are willing to take the volatility associated with equity investments can opt for the equity-oriented fund. In contrast, debt-oriented funds offer more or less stable returns in comparison to equity funds.

    Professional Management

    Children’s mutual funds are managed by professional fund managers. As a result, even if an investor has little or no market understanding, they can invest in the best children’s mutual funds. Such professional management helps in maximising returns.

    Limitations of Investing in Children Funds

    Exit Load

    Children’s mutual funds have a minimum lock-in period of five years. Premature withdrawals come with a high penalty in terms of exit load. The exit load for children’s funds can go up to 4%. Therefore, one should be cautious while choosing a fund and also in case they are opting for premature withdrawals.

    High volatility

    Mutual funds are highly volatile investment options. Children’s mutual funds can also be highly volatile based on the asset allocation. Equity oriented funds are more volatile in comparison to debt-oriented child funds. Therefore, one should be considerate about the volatility factor while choosing a fund for their child.

    Who should Invest in Children’s Funds?

    Children’s mutual funds best suit investors who want to secure their child’s financial future. These tailor-made investment plans help investors to save up for their child’s education and other essential expenses. Since these funds fall under the tax exemption category, parents looking for tax saving as one of the goals can invest in these funds.

    These funds come with a minimum lock-in of 5 years and a heavy penalty for premature withdrawals. Hence investors who are willing to stay invested for a long tenure can invest in them. Since Children’s funds are tailor-made and customisable, investors who are looking for the flexibility to choose lock-in period and portfolio (between debt-oriented and equity-oriented) can consider investing in them.

    Things To Consider Before Investing in Children Funds

    Investment Goals

    Mutual funds offer multiple schemes for different goals. Similarly, saving for a child’s future can be done by investing in Children Funds. Children Funds are suitable investment options for parents who are willing to invest for a long-term duration in the equity and debt instruments. One can have an investment portfolio with well-segregated investments. In other words, different goals for different phases of life can be attained through children’s funds.

    Investment Duration

    Children’s funds come with a lock-in period of five years. Furthermore, parents or guardians can extend their investments until they reach maturity, i.e., 18 years. Therefore, one should consider the mandatory lock-in period and penalty before choosing a fund.

    Returns and performance of the fund

    Historical performance may not guarantee future returns. However, one should thoroughly analyse the historical performance of a fund. The consistency in generating significant returns and outperforming the benchmark are important factors to consider before investing in a mutual fund. Therefore, always look for funds that have performed well across different market cycles.

    Exit Load

    These mutual funds often have a high exit load. If an investor prematurely withdrawals, the exit load can go up to as high as 4%. Therefore, while investing in a mutual fund, considering the exit load of the fund is important.

    Documentation

    There is quite a bit of documentation for investing in children’s funds. Parents or guardians have to provide official documents to prove their relationship with the child. Also, during redemption, additional documents pertaining to the child will have to be submitted.

    Lock-in Period

    There is a mandatory lock-in period of 5 years for children’s funds. Also, the penalty for withdrawing prematurely is quite high. The lock-in period ensures the effects of market volatility on the portfolio are reduced. Hence investors have to consider this before investing in these funds.

    Financial Ratios

    Several financial ratios help in evaluating children’s plans. However, the following are a few of the key financial ratios that help in evaluating these mutual funds:

    Alpha

    It is a measure of a mutual fund’s performance against its benchmark. In other words, it shows how well the fund has performed against its benchmark. A positive number shows that the fund has outperformed the benchmark.

    Standard Deviation

    Standard deviation measures risk in the portfolio by measuring the volatility of returns from its average return. A high standard deviation shows that the fund is highly volatile.

    Beta

    Beta measures the sensitivity of the children’s fund to stock market movements. A beta that is more than one shows the fund is very sensitive to market movements. A beta that is less than one shows lower sensitivity to market movements. However, if the beta is one, then the fund’s portfolio moves in tandem with the market.

    Portfolio Turnover Ratio

    The portfolio turnover ratio shows how many times the fund’s portfolio has changed in a year. A lower portfolio turnover ratio is better as the transaction costs and sometimes capital gains tax will be lower, hence reducing the fund’s overall expenses.

    Sharpe Ratio

    Sharpe ratio measures the fund returns considering the systematic risk or standard deviation of the fund into account. It is the risk-adjusted return of the fund. Hence, a higher Sharpe ratio is better.

    R-squared

    R-squared is a statistical tool that shows how much of the fund’s movements can be due to the market or benchmark’s movements. It ranges from zero to 100, showing no correlation to a high correlation to the market.

    Cost of Children’s Funds

    Children’s fund comes with a cost, and it is called the expense ratio and exit load. The expense ratio covers all transaction costs, fund management fees, market and distribution costs. In contrast, the exit load discourages all premature withdrawals. The expense ratio is a mandatory expense, while the exit load can be avoided by staying invested until the lock-in period ends. Hence investors have to consider these expenses before investing in children’s funds.

    Taxation of Children’s Funds

    Children’s plans come with a tax benefit. Investment in these funds qualifies for tax deduction up to INR 1.5 lakhs under Section 80C of the Income Tax Act, 1961. However, the maturity proceeds are taxable as per the regular tax rules. For equity funds, capital gains above INR 1 lakh are taxable at 10%. Whereas, for debt funds, the capital gains are taxable at 20% with indexation benefit. Hence investors have to consider the taxation of the returns from these funds before investing in them.

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