Mutual Fund Child Plan

What is Mutual Fund Child Plan?

A mutual fund child plan is an investment option that helps you to create a financial net to secure your child's future financial needs. These plans are structured to provide a disciplined and goal-oriented approach to investing fir your child’s higher education, career, marriage, or other important life milestones. There are two main types of mutual fund child plans: 

• Unit Linked Insurance Plans (ULIP)

• Child Plans

These child investment plans invest in a variety of mutual fund assets, such as:

• Equities

• Bonds

• Hybrid Funds

The goal of these plans is to grow the money over time so that it can be used for the child's education, coaching, tour, marriage, or other expenses.

Best Mutual Fund Plans for Child in 2023

The best mutual fund today offered by various insurance companies for an individual with the following conditions are listed in the table below:

• Your Entry Age: 30 years

• Investment Amount: Rs. 10,000 per month

• Premium Payment Term: 10 years

• Policy Term: 20 years

What are the Features of Mutual Fund Child Plan?

Child Plan is one of the best mutual fund to invest now to create a large corpus for your child. Some of its key features are listed in the table below:

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What are the Benefits of Mutual Fund Child Plan? 

There are many benefits to investing in a mutual fund based child plan. Some of the key benefits include:

1. Transparency

   Mutual Fund Child Plans provide transparency regarding the portfolio holdings, performance, and charges associated with the plan.

2. Growth Potential 

   The funds in ULIP plans and Child Investment Plans have the potential to grow your money over time, thanks to the power of compounding.

3. Rupee Cost Averaging 

   If investing through SIPs, ULIP and child plans benefit from rupee cost averaging. As regular investments are made at different market levels, more units are purchased when prices are low and fewer units when prices are high. This helps in mitigating the impact of market volatility and potentially enhances returns over the long run.

4. Long-Term Wealth Creation 

   Child Investment Plans and ULIPs typically have a long investment horizon, which allows for potential wealth creation over time. 

5. Secured Investment 

   Mutual funds are a secure investment option as they are regulated by the Securities and Exchange Board of India (SEBI).

6. Easy Liquidity 

   While child plans are intended for long-term investing, they still offer liquidity options like Systematic Withdrawal Plan (SWP). Investors can typically make partial withdrawals or redeem units if there is a need for funds in case of need, emergencies or unforeseen expenses.

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Documents Required to Buy a Mutual Fund Child Plan

The documents required to buy a mutual fund child plan are as follows:

How to Buy a Mutual Fund Child Plan?

To buy a mutual fund-based child plan, you can follow these general steps:

Step 1: Determine your financial objectives for the child's future

Step 2: Conduct thorough research on different insurance companies and their fund options in ULIP and child investment plans

Step 3: Choose a child plan from the list of best investment plan for child mentioned above. Select a plan that aligns with your financial goals, risk tolerance, and investment preferences.

Step 4: Complete the KYC process

Step 5: Choose among the lump-sum investment or opt for a Systematic Investment Plan (SIP)

Step 6: Duly fill out the application form and submit it along with essential documents

Step 7: Make the initial premium amount through cheque, demand draft, or online payment

Step 8: Regularly review your investment and make adjustments as needed to stay on track with your financial goals

Mutual Funds vs. Mutual Fund Child Plans

Mutual funds and mutual fund child plans are both investment options for children, but they have some differences in their purpose and features:

Important Points to Consider Before Investing in Mutual Fund for Child

Here are some important points to consider before investing in a mutual fund child plan and ULIP Plan:

1. Investment Goal

   The first step is to determine the purpose of investing in a ULIP or child plan. Are you saving for your child's education, marriage, or something else? Once you know your investment goal, you can start to look for mutual funds that align with your goals.

2. Risk Profile

   Consider how much risk are you comfortable taking with your investment? Mutual funds can be risky, so it is important to choose funds that match your risk tolerance.

3. Investment Horizon

   Understand your investment horizon. Determine, how long do you plan to invest? As mutual funds are a long-term investment, so it is important to choose funds that have a long track record of performance.

4. Fund Type

   There are many different types of mutual funds available. Some of the most popular types of mutual funds for children include-

   Fund Type	Investment Type	Risk- Return Factor
   Equity funds	Invests in stocks and equities	Potential for high returns Carry a high level of risk
   Debt funds	Invests in bonds	Lower returns Lower risk
   Hybrid funds	Invest in a mix of stocks and bonds	Offers a balance of risk and return

5. Fund Manager

   The fund manager is responsible for making investment decisions for the mutual fund. It is important to choose a fund manager with a good track record of performance.

6. Fees

   Mutual funds charge fees, which can eat into your returns. It is important to choose funds with low fees.

7. Exit load

   Some mutual funds have an exit load, which is a fee charged when you sell your shares. It is important to factor in the exit load when you are making your investment decision.

8. Fund Performance

   Assess the historical performance of the mutual funds included in the child plan. Look for consistent returns over different market cycles and compare them with relevant benchmarks. Keep in mind that past performance does not guarantee future results.

9. Asset Allocation 

   Examine the asset allocation strategy of the child plan. It should be well diversified across different asset classes like equities, debt instruments, and possibly other asset classes, depending on the plan.

In Conclusion

A mutual fund child plan can be a suitable investment option to secure your child's future financial needs. They offer a number of benefits, including tax benefits, flexibility, potential for high returns, and security. However, before investing, it is crucial to consider carefully factors such as the risk profile, fund performance, asset allocation, costs and fees, investment tenure, tax implications, and the reputation of the fund house.