Best Mutual Fund for Children in India in 2022

7 min read • Published 30 October 2022
Written by Animesh Gupta
Best Child Plans Mutual Fund in 2022

The Securities and  Exchange Board of India (SEBI) has introduced a category of mutual funds to enable people to fulfil various financial goals such as children’s education or retirement plan. These are called solution-oriented mutual funds, and they invest in both equities and debt securities to meet such long-term financial needs. This blog will explore the best mutual funds for children in 2022 and other important details. 

What are Solution-Oriented Funds for Children? 

SEBI has introduced this category recently to help people execute their  long-term economic goals more effectively. However, note that the schemes which fall under this category were in operation long before this category was introduced. For example, solution-oriented mutual funds previously belonged to the category of equity or balanced schemes. 

Now, fund managers can create the portfolio with both equity and debt instruments. Moreover, they can alter the strategies for investors of different age groups. Investors can choose for a higher equity or higher debt based on their investment horizon and risk appetite. 

Children’s mutual funds have a lock-in period of a minimum of 5 years or till the child attains the stipulated majority age, whichever is earlier. 

List of the Best Children’s Mutual Funds in 2022

The table below enumerates the top-performing children’s funds in India in 2022 based on their 5-year returns: 

Children’s Fund3-Year Annualised Returns 5-Year Annualised Returns 
HDFC Children Gift Fund- Direct Plan-Growth 16.76%12.85% 
UTI CCF-Investment Plan- Direct Plan-Growth 17.93%11.66%
Axis Children’s Gift Fund- No Lock-in- Direct Plan-Growth13.15%11.63% 
Axis Children’s Gift Fund-Compulsory Lock-in- Direct Plan-Growth 12.97%11.48%
ICICI Prudential Child Care Fund- Direct Plan- Gift Plan 13.09%10.25% 
Tata Young Citizens Fund- Direct Plan-Growth17.11%10.23% 
SBI Magnum Children’s Benefit Fund- Savings Plan- Direct Plan-Growth 12.24%9.43% 
LIC MF Children’s Fund- Direct Plan-Growth9.91%7.25% 
UTI CCF Savings Plan- Direct Plan-Growth 10.65%7.06% 
*Data valid as of September 28, 2022 

Read More: PPF vs LIC: A Detailed Comparison

Benefits of Investing in Mutual Funds for Children 

Discussed below are the important benefits of children’s funds:

  • Investment in the best children’s mutual funds ensures the continuation of your child’s education even if you go through a financially difficult period. 
  • These funds also help you formulate plans for various phases of a child’s life, such as schooling and higher education. Segregation of financial objectives helps you avoid financial strains during such crucial times. 
  • Allotting money to meet different financial goals creates an organised and balanced investment portfolio. 
  • Solution-oriented schemes such as children’s funds inculcate financial discipline and help in long-term investment. In addition, these investment options carry a high exit penalty, ensuring that people remain invested for a considerable period before withdrawing the amount.

Who Should Invest in Children’s Mutual Funds? 

Listed below are the investors who should invest in children’s funds: 

  • Children’s mutual funds are ideal investment options for parents who wish to build a financial corpus to help their children build their careers. 
  • Investors with a long-term investment horizon who can stay invested for at least 5 years should invest in these funds.
  • Those who are looking for tax benefits while creating a corpus for their children can also invest. 

How Can Parents Formulate Investment Strategies for their Children’s Future? 

Given below are some essential points that will help parents come up with an investment strategy for their children’s education:

  • First, parents can calculate the costs of schooling and higher education. This will provide a clear picture of how much they need to save after meeting their regular expenses.
  • Investors must consider the impact of inflation while formulating their investment strategy for children’s future, where education costs rise every year at a quicker pace than the inflation rate. This makes it necessary for parents to start saving early. On can refer to the historical CPI inflation on education to understand the YoY inflation. 
  • Time and exchange rates are other crucial factors that people must consider while formulating strategies. This is important, especially if the child wishes to pursue higher education abroad.

How to Start Investing in Children’s Funds? 

Adopting the Systematic Investment Plan (SIP) investment route is ideal for children’s funds. Apart from inculcating financial discipline in the investors, it also helps them to benefit from the power of compounding and rupee cost averaging in different market cycles. 

SIP is a beneficial investment mode because the minimum investment amount is as low as Rs. 500. Considering the rising cost of living, people may not always have the luxury of shelling out a lump sum amount for investment in children’s funds.

Other Investment Options for Children  

Listed below are other investment options for children: 

  • Public Provident Fund (PPF)
  • Sukanya Samriddhi Yojana
  • Fixed deposits 

The table below compares children’s mutual funds with these other investment options:

FactorsChildren’s Fund Public Provident FundSukanya Samriddhi YojanaFixed Deposits 
BenchmarkNIFTY 50 No benchmarkNo benchmarkNo benchmark
Return Rate~ 7.87%7.1% 7.6% 5.45% to 6.50%
Average Maturity Period 1.9 years 15 years (can be extended) 18 years 6 months-120 months 

Tax Benefits from Investments in Children’s Funds

Section 80C of the Income Tax Act enables parents who have invested in children’s funds to avail tax deductions from their income. The maximum amount that is eligible for deduction is Rs. 1.5 lakh. 

Moreover, the interest earned from children’s funds is tax-exempted. Therefore, taxes get levied only after the fund’s maturity and the disbursal of the amount. 

As per Section 10 (32) of ITA, if the interest income exceeds Rs. 6,500 in a year, the parents can claim an annual tax exemption of Rs. 1,500 per child. 

In addition, if children suffer from specified disabilities, parents can receive additional tax benefits for investing in children’s funds. 

Also Read: Best Investment Plan for Child Education

Important Things to Consider Before Investment 

Given below are important factors that one has to consider before investing in children’s funds: 

  • First, it is crucial to determine the investment horizon, i.e. how long one can remain invested in a fund. Considering children’s schooling and higher education, it can range from 5 years to 15 years or even longer. 
  • Evaluate the past performances of various children’s funds to check the risk-adjusted returns. Then, select the one most suitable for you after proper research.
  • Another crucial factor is your risk appetite. It is the amount of risk you can afford to take with the invested amount. Therefore, choose a scheme that is aligned with your risk appetite. 

Final Word

To sum up, this blog has provided a list of the best children’s mutual funds in 2022. It has explored the crucial details regarding this particular solution-oriented fund which is an ideal option for meeting the long-term financial needs of growing children. It is a good idea to start investing as soon as possible because the costs of education are rising every year. 

FAQs about Mutual Fund for Children

Can I invest in solution-oriented funds for wealth creation?

Solution-oriented funds are carefully designed to meet specific goals, come with a lock-in period of a minimum of 5 years and carry an exit load. So, if you wish to invest for long-term wealth creation, a solution-oriented fund is a good option.

What is the difference between a child plan and a children’s fund?

A child plan is a life insurance plan that provides a default insurance cover for children and their parents. The portfolios of child plans are not associated with flexibility. On the other hand, a children’s mutual fund is an investment product which does not provide insurance coverage. Investors of these mutual funds get the benefit of portfolio diversification.

What is the average rate of return for solution-oriented funds?

As mutual funds are subject to market risks, returns are not guaranteed. But, if you are willing to make a long-term commitment, then you can expect annualised returns of 10%-12% from an equity-oriented fund and 8%-10% from a debt-oriented fund.

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Animesh Gupta

Credit Principal
Animesh Gupta is a Chartered Accountant by profession and a NISM certified Mutual Fund Expert. He has over 5+ years of experience working in the Financial Services Industry. In his role at Wintwealth, he is part of the Credit and Risk team and evaluates the risk of the bonds available on Wintwealth's platform.

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