Children's Gift Mutual Funds

Children's Gift Mutual Funds are specially designed investment plans that help parents or guardians secure a child’s future financial needs, such as education or marriage. These funds typically come with a lock-in period and are structured to encourage long-term savings. By investing in a mix of equity and debt instruments, Children's Gift Funds aim to generate stable returns while offering the benefit of disciplined investing. They not only provide financial support but also build a habit of early financial planning for children’s goals.

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Investing in your child's future:Nothing is more important than securing your child's future
Benefits of Investing In Child Plan
Waiver of Premium Benefit
Future Premiums are paid by the insurer upon death of policyholder
Flexible Payout Options
Your premiums help your child achieve their dreams through lump sum or regular payouts
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Tax Benefits^
You get tax benefits under Section 80(C) and no tax on returns under Section 10 (10D)
Investment Flexibility
It offers the flexibility to invest at regular intervals or as a one-time contribution
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Top Children's Gift Mutual Funds in India

Mutual Funds  3 Years Returns  5 Years Returns 
HDFC Children's Fund 20.14% 21.38%
Axis Children's Fund​ 14.40% 15.56%
UTI Children's Equity Fund 19.09% 20.96%
Tata Young Citizens Direct 19.98% 21.24%
LIC MF Children's Fund Direct-Growth 15.10% 15.07% 

Details of Top Children’s Gift Mutual Fund

  1. HDFC Children's Fund

    HDFC Children's Fund seeks to generate capital appreciation/income from a portfolio of equity and equity-related instruments and debt and money market instruments.

    Fund Overview: 

    • Expense Ratio: 0.87%

    • AUM: ₹10,177 Crs

    • Lock-in: 5 Years

    • Age: 12 yrs 5 m

    • Benchmark: NIFTY 50 Hybrid Composite Debt 65:35

    • Minimum Investment: SIP ₹500 & Lumpsum ₹5000

  2. Axis Children's Fund

    Axis Children's Fund seeks to generate income by investing in debt & money market instruments along with long-term capital appreciation through investments in equity & equity related instruments.

    Fund Overview: 

    • Expense Ratio: 1.3%

    • AUM: ₹908 Crs

    • Lock-in: 5 Years

    • Age: 9 yrs 7 m

    • Benchmark: NIFTY 50 Hybrid Composite Debt 65:35

    • Minimum Investment: SIP ₹1000 & Lump. ₹5000

  3. Tata Young Citizens Direct

    Tata Young Citizens Direct seeks to generate long-term capital growth.

    Fund Overview: 

    • Expense Ratio: 2.06%

    • AUM: ₹366 Crs

    • Lock-in: 5 Years

    • Age: 12 yrs 5 m

    • Benchmark: NIFTY 500 TRI

    • Minimum Investment: SIP ₹500 & Lump. ₹1000

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  4. LIC MF Children's Fund Direct-Growth

    LIC MF Children's Fund Direct-Growth seeks to provide long term growth of capital through a judicious mix of investments mainly in quality debt securities with relatively low level of risks.

    Fund Overview: 

    • Expense Ratio: 1.68%

    • AUM: ₹15 Crs

    • Lock-in: 5 Years

    • Age: 12 yrs 5 m

    • Benchmark: CRISIL Hybrid 35+65 Aggressive Index

    • Minimum Investment: SIP ₹1000 & Lump. ₹5000

Eligibility Criteria To Invest in Children's Gift Funds

To invest in Children’s Gift Mutual Funds, the following eligibility rules apply:

  • The investment must be made in the name of a minor child.

  • Only parents or legal guardians are authorised to invest on behalf of the child.

  • The fund ownership is transferred to the child once they reach the age of 18 years, subject to KYC completion.

  • Essential documents like the child’s birth certificate and the guardian’s KYC documents must be submitted at the time of investment.

Benefits of Children's Mutual Fund Plans

Investing in Children’s Gift Funds offers a range of benefits for parents aiming to build a stable and secure future for their children:

  • Long-Term Wealth Creation: By investing in both equity and debt markets, these funds provide opportunities for steady capital appreciation over the years.

  • Goal-Based Planning: These funds help you plan for key life stages—schooling, college fees, overseas education, marriage, or medical needs.

  • Promotes Investment Discipline: Lock-in periods discourage frequent withdrawals, ensuring that the corpus grows uninterrupted.

  • Segmented Financial Planning: Enables parents to track investments for specific child-related goals more effectively.

  • Tax Efficiency: Returns are taxed only upon redemption, and debt-oriented variants benefit from indexation.

  • Tailor-Made Options: Many AMCs allow customisation based on your goals, time horizon, and risk tolerance.

  • Automatic Transition: When the child turns 18, the fund legally transfers to them, offering financial freedom for adult life plans.

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Who Should Consider Investing in Children’s Gift Fund? 

  • Parents who want to secure their child’s future education or marriage funds.

  • New investors looking to develop financial discipline through long-term investment.

  • Guardians planning to build a corpus over 10-15 years.

  • Families with children who have special financial needs or long-term goals.

  • Those seeking customisable, tax-efficient investment vehicles with low liquidity pressure.

Why Should You Consider Children's Gift Fund?

  • Assured Returns: Consistent performance with long-term wealth creation.

  • Lock-in for Discipline: Encourages goal-focused investing without early redemptions.

  • Balanced Portfolio: Combines equity (for returns) and debt (for stability).

  • Tax Benefits: Section 80C deductions and Section 10(32) exemptions apply.

  • Transferable Ownership: On turning 18, the child becomes the fund owner after KYC.

Types of Children’s Gift Mutual Funds 

Children’s funds fall under the category of hybrid or balanced funds, and are classified as:

  1. Hybrid Equity-Oriented Funds

    • Equity exposure: More than 60%

    • Ideal for: High return expectations with moderate-to-high risk tolerance

  2. Hybrid Debt-Oriented Funds

    • Debt exposure: More than 60%

    • Ideal for: Conservative investors seeking stability and moderate returns

Taxation On Children’s Gift Mutual Fund

  • Capital Gains Tax: Payable only upon redemption.

    • Equity-oriented funds: 10% LTCG tax if gains exceed ₹1 lakh.

    • Debt-oriented funds: Taxed as per individual’s slab (post indexation).

  • Section 80C Benefit: Up to ₹1.5 lakh per year can be claimed.

  • Section 10(32): Additional ₹1,500 exemption per child for interest income.

  • Tax Deferral: No taxes until units are redeemed, allowing compounded growth.

  • Disability-related Exemptions: Extra tax relief for children with disabilities.

Points to Consider Before Investing in Children's Gift Funds 

  • Fund Objective & Strategy: Choose based on your child’s age and goal timelines.

  • Risk Appetite: Equity-oriented for higher growth, debt-oriented for stability.

  • Lock-in Period: Minimum of 5 years or until the child turns 18, whichever is earlier.

  • Exit Load: High penalties (up to 4%) on early withdrawals to encourage long-term investment.

  • Expense Ratio: Affects overall returns—opt for funds with lower annual charges.

  • Documentation: Ensure you complete all KYC and child’s verification requirements.

  • Performance Monitoring: Review fund performance periodically, aligned with goals.

Conclusion

Children’s Gift Mutual Funds are a thoughtful and strategic way to invest in your child’s future. With a blend of capital growth potential and financial discipline, these funds can help build a strong financial foundation over time. Whether it’s higher education, career aspirations, or life milestones, these funds ensure you are financially prepared. Start early, stay invested, and watch your small contributions grow into a meaningful gift for your child’s tomorrow.

FAQs

  • Who can invest in a Children’s Gift Fund?

    Parents, legal guardians, or relatives can invest in a child’s name. The child should be a minor (below 18 years of age) at the time of investment. The parent or guardian typically acts as the custodian until the child becomes a major.
  • What is the lock-in period for Children’s Mutual Funds?

    Most Children’s Gift Funds come with a mandatory lock-in period of 5 years or until the child turns 18 years old, whichever is earlier. This ensures the investment is aligned with long-term goals.
  • Which is better – a Children’s Gift Fund or a regular SIP?

    Children’s Gift Funds are purpose-built with a lock-in to promote long-term discipline, whereas regular SIPs offer more flexibility. If your goal is long-term (like education or marriage), a Children’s Gift Fund is more suitable.
  • What is the difference between a Child Plan and a Children’s Gift Mutual Fund?

    A Child Plan is a broad category that includes insurance-cum-investment products like ULIPs offered by life insurance companies, aimed at securing a child’s future needs through a lump sum payout or periodic income. On the other hand, Children’s Gift Mutual Funds are market-linked mutual fund schemes for building a financial corpus for children’s goals through long-term equity and debt investments. While Child Plans offer life cover and guaranteed benefits, Children’s Gift Funds focus on market-driven growth without insurance cover.

˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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