The introduction of Union Mutual Fund’s children’s fund has reignited discussions about the legitimacy of solution-oriented mutual fund schemes and the validity of including them in one’s investment portfolio.
The justification for investing in children’s funds continues to be a subject of ongoing discussion. Advocates for these schemes contend that they provide a convenient and potentially lucrative means of saving for particular financial objectives, such as a child’s education. Additionally, they emphasise that the lock-in periods associated with these funds can assist investors in maintaining discipline and avoiding impulsive withdrawals.
Critics of solution-oriented mutual funds assert that they frequently come with higher costs compared to other mutual fund types, and their imposed lock-in periods can be constraining. They also contend that investors might find greater benefit in allocating their investments across a diversified portfolio of mutual funds rather than putting their funds into a single solution-oriented fund.
Determining the value of the attention garnered by children’s funds is a nuanced inquiry with no straightforward solution. The emphasis should be on engaging in investments that can outpace inflation, which is why numerous individuals turn to mutual funds to strategically secure sufficient finances for their children’s future. Naturally, numerous factors, including individual financial objectives, risk tolerance, and investment timeframe need consideration. Nevertheless, the question persists: Do children’s funds truly merit the extensive attention they receive?
Assessing the performance of a mutual fund over an extended period, such as a decade or more, can provide insights into its stability and dependability. Through a comparison of the historical returns of mutual funds with alternative investment choices, you can make well-informed decisions regarding the allocation of your funds to meet long-term financial goals, such as funding your children’s education or marriage.
The table below demonstrates fund returns and compares them across diverse investment opportunities, facilitating informed decision-making.
Type of investment |
Name of the investment |
10-year returns (in %) |
Monthly investment (in Rs) |
Investment tenure (in years) |
Value of the investment (in Rs) |
Children’s Fund |
HDFC Children’s Gift Fund |
16.82 |
12, 500 |
25 |
5,79,58,154 |
ICICI Prudential Child Care Fund |
15.20 |
12, 500 |
25 |
4,26,18,947 |
|
Tata Young Citizens Fund |
13.84 |
12, 500 |
25 |
3,31,01,235 |
|
Large-cap funds |
Mirae Asset Large Cap Fund |
17.54 |
12, 500 |
25 |
6,65,79,099 |
ICICI Prudential Bluechip Fund |
16.34 |
12, 500 |
25 |
5,28,76,142 |
|
Kotak Bluechip Fund |
15.95 |
12, 500 |
25 |
4,90,97,322 |
|
Focused funds |
Nippon India Focused Equity Fund |
21.25 |
12, 500 |
25 |
13,83,90,499 |
Quant Focused Fund |
20.61 |
12, 500 |
25 |
12,17,52,967 |
|
Franklin India Focused Equity Fund |
19.59 |
12, 500 |
25 |
9,94,22,798 |
|
Mid-cap funds |
Kotak Emerging Equity Fund |
24.40 |
12, 500 |
25 |
26,24,39,503 |
Edelweiss Mid Cap Fund |
23.95 |
12, 500 |
25 |
23,92,98,268 |
|
Tata Mid Cap Growth Fund |
22.41 |
12, 500 |
25 |
17,48,59,509 |
|
Small-cap funds |
Nippon India Small Cap Fund |
29.40 |
12, 500 |
25 |
74,39,43,029 |
SBI Small Cap Fund |
28.29 |
12, 500 |
25 |
58,89,50,744 |
|
DSP Small Cap Fund |
26.03 |
12, 500 |
25 |
36,74,48,915 |
|
Value Funds |
HSBC Value Fund |
21.59 |
12, 500 |
25 |
14,81,77,306 |
JM Value Fund |
20.57 |
12, 500 |
25 |
12,07,85,068 |
|
ICICI Prudential Value Discovery Fund |
20.27 |
12, 500 |
25 |
11,37,77,343 |
|
Source: AMFI (As of November 28, 2023) |
A cursory glance at the returns reveals that numerous other funds have outperformed children’s funds in terms of returns. Given that many mutual funds consistently generate returns exceeding 12 per cent or surpassing inflation over the long term, individuals aiming to accumulate a substantial corpus may find potential opportunities beyond children’s funds. Despite the mutual fund industry’s endorsement of children’s funds for their perceived security and balanced risk-reward profile, alternative options may warrant consideration.
The genuine worry of education inflation underscores the significance of initiating early plans for your child’s education. Even with a conservative estimate, considering half of the anticipated inflation rate, the expenses for a graduate course are projected to double in the next 15-20 years. Consequently, parents of newborns should commence savings early to accumulate sufficient funds, ensuring their children can complete their graduation without financial constraints.
This could clarify the importance of exercising caution when selecting investments, particularly those designated for funding children’s education in the long term. While other types of funds might outperform children’s funds in terms of returns, the significant factor contributing to the increasing popularity of children-focused funds is the associated lock-in period. The lock-in period is designed to discourage short-term exits. While it may seem restrictive, on the flip side, it serves as a deterrent against impulsive exits by investors experiencing even minor financial stress.
Targeted at aiding investors in attaining particular financial objectives like children’s education or retirement, solution-oriented mutual funds usually allocate investments across a blend of stocks and bonds. The primary objective is to achieve sustained long-term growth while prudently managing risks. Nevertheless, the nomenclature alone should not compel investors to allocate their earnings to these funds.
Mutual fund investments can cater to a diverse range of goals, making it unwise to rely exclusively on a singular type of mutual fund tied to a specific theme or sector. The key concept should revolve around optimising investments to enhance returns, a strategy contingent on various factors.
The decision of whether or not to invest is influenced by numerous factors, including your grasp of personal finance, risk tolerance, and commitment to sticking with your investment choices.
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Updated: 05 Dec 2023, 04:26 PM IST