Child Plans offered by Mutual Funds :
Mutual fund houses like HDFC, ICICI Prudential, UTI, Templeton, Tata and SBI offer a variety of choices as far child plans are concerned. Child plans also help earmark funds for specific goals, dividing the portfolio into several categories. This makes it simpler for a parent to monitor the investment for a particular goal.
This segregation is important because each goal has a different time frame and, therefore, requires a different investment mix. For example, your child’s college or higher education may only be two or three years away and while his or her marriage may be five or six years away, prompting different investment choices for these two goals. These funds have exit loads, as high as 4% and the minimum period can extend up to 5 years. In a way, this is beneficial for investors because it forces them to remain invested for the long term, and thereby create wealth for their children’s goals.
Equity Oriented Child Plans:
- Children’s Gift Fund Investment Plan:
This scheme was launched in 2001 and has over Rs 1462 crores assets under management (AUM). This scheme is clearly the best performing amongst the child plans. It is predominantly equity oriented in its portfolio mix. Equities comprise nearly 71% of the portfolio, while debt and cash equivalents account for 13% and 16% respectively
- UTI Children’s Career Plan Advantage Fund:
This scheme launched in 2004, has nearly Rs 171 crores AUM. It has largely an equity bias, with equities comprising 93% of the portfolio mix. Debt accounts for 4% and cash equivalents 3% of the portfolio holdings.Other equity-oriented Mutual Fund Children plans are from Templeton Mutual Fund and ICICI Pru Mutual Funds.
- Debt Oriented Child Plans:
In addition to equity oriented child plans, debt oriented child plans are also available in the market. These plans have a more conservative portfolio mix and are suitable for investors with moderate risk profiles and time horizons.
- Child Care Plan – Study Plan:
This scheme was launched in 2001 and has Rs 80 crores of AUM. The portfolio mix is weighted to debt, with equities comprising only 24%, debt 73% and cash equivalents 3%. The quality of the debt portfolio is good, comprising of G-Secs and highly rated corporate bonds.
- Tata Young Citizens Fund:
This is one of the oldest child plans, launched in 1995. It has nearly Rs 180 crores of AUM. This fund has a slightly higher allocation to equities compared to its peers. Equity accounts for 49% of the portfolio mix, while fixed income securities (debt and money market) comprise about 44% of portfolio value. The balance is in cash equivalents.
- HDFC Children’s Gift Fund Savings Plan:
This scheme, launched in 2001, has Rs 103 crores of AUM. In terms of portfolio composition debt is 51%, equity 19% and cash equivalents in close to 30%. The quality of the debt portfolio is good, comprising of G-Secs and highly rated corporate bonds.
- SBI Magnum Children Benefit Plan:
Thus scheme was launched in 2002 and has AUM base on Rs 38 crores. In terms of portfolio mix, equity comprises 24%, while fixed income securities (debt and money market) 74% of the portfolio, with debt accounting for 48%. The balance is in cash equivalents. The quality of the debt portfolio is good, comprising of G-Secs and highly rated corporate bonds.
The performance of child plans is really a mixed bag. Since your children’s education and marriage are among the most important goals of your lives, you should be very selective in choosing the right child plan. At the end of the day wealth creation to meet your child’s need is the fundamental objective. As such, for the savvy investor, investing in the right diversified equity or balanced funds may be a smarter strategy because you have a vast array of choices amongst funds that have delivered better risk adjusted returns than the child plans (in fact top performing large cap funds have delivered a few percentage points higher returns than the child plans). Since Child plan has a lock-in period and high exit load it forces the investor to stay disciplined.
Mutual funds are ideal investment options for planning your children’s futures :
We have seen that equity is the best long term investment choice for your children. As such good equity mutual funds through systematic investment plans (SIPs) are ideal investment options for your children as they are growing up. Long term capital gains in equity funds are tax free. You can even save taxes under Section 80C by investing in Equity Linked Savings Schemes (SLSS). Financial planning for your children is a dynamic process.
As your children approach their life milestones like higher education or marriage, you need to rebalance your investment portfolio to have a greater allocation to debt investments where the risk is considerably lower, while you still earn a decent return. There are enough mutual fund products across risk profiles like equity funds,balanced funds, monthly income plans, income funds etc, that parents can choose when their child is growing to optimize the returns while ensuring that the risk profile of their investment portfolio is consistent with the financial plan for their children.
Parents can also opt for mutual fund child plans.This makes it simpler for a parent to monitor the investment for a particular goal. This segregation is important because each goal has a different time frame and, therefore, requires a different investment mix.
When your children reach their milestones, you can redeem your investment either through systematic withdrawal plans (SWP) to meet the cash flow needs of your children’s higher education or in lump sum to fund the expense of their marriage.
Don’t Go! See our next article (Historical Return of Different Mutual Funds).
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