The children’s gift funds are a type of mutual fund scheme. These funds are positioned at funding various life events of children such as higher education and marriage. Children’s gift funds are classified under hybrid or balanced mutual funds.
1.Classification of Children’s Gift Funds
These funds are further classified under hybrid equity-oriented and hybrid debt-oriented funds depending on their debt and equity exposures. If the fund’s equity exposure is more than 60%, then it is considered as the hybrid equity-oriented fund. If the fund’s debt exposure is more than 60%, then it is considered as the hybrid debt-oriented fund.
2.Who is Eligible to Invest?
Investments in these funds can be made only in the name of the minor child. Parents or legal guardians are allowed to invest in these funds on behalf of their child.
3.Points to Note Before Investing in Children’s Gift Funds
Following are some of the points to note before investing in the children’s gift fund schemes:
- The Objective of the Fund: Check out the fund’s objective. Look for the investment strategy and asset allocation. If you are not ready to bear any risk, then invest in debt dominated funds.
- Exit load and Expense Ratio: These are the cost you bear to invest in mutual funds. Expense ratio is charged on a yearly basis while the exit loads are paid when redeeming the fund units.
- Lock-in Period: Understand your requirements before choosing a fund. If you are looking for a short-term investment, then don’t invest in children’s gift funds as these funds are typically locked-in until the child attains the age of 18 years.
- Documentation: To start investing in children’s gift funds, you are required to submit official documents, which prove that you are a parent or a legal guardian of the child. At the time of redemption, you may be required to furnish additional documents pertaining to your child.
- Rate of return: If you are looking for the best returns, then you can invest in hybrid equity-oriented funds. But remember that high returns come with high risks. If you are not ready to bear any risks and are ready to settle with moderate returns, then invest in hybrid debt-oriented funds.
4.Benefits of Children’s Gift Funds
- Investing in children’s gift funds instils financial discipline over a long-term.
- You can better plan your child’s various life events.
- Monitoring of these funds is easy and straightforward.
- There are no tax implications until redemption.
- Taxes payable at redemption is minimised due to the benefit of indexation.
Every parent cares for their children’s future. The best thing that you can do as a parent is securing your children’s future by investing in suitable instruments. Children’s gift funds are one such avenue that ensures the children’s future is well off.