Mutual Fund Schemes Booklet of Children - A Guide to 2025
Investing in mutual funds to secure the future of children has taken over as an important aspect of family financial planning in India, particularly in 2025. As the necessity to plan early in higher education, marriage or any other milestones increases, the mutual fund schemes of children provide a platform of accumulating wealth systematically to guarantee the dreams of a child. This article is a description of all you need to know about the children-oriented mutual funds- how it operates, its advantages, disadvantages and the current trends applicable to Indian investors.
What Are Children’s Mutual Fund Schemes?
Mutual fund schemes of children are specialised plans that are meant to establish a financial corpus of the needs of a child. These are either equity-based, debt-based or balanced funds but are always features designed to suit minors like lock-in periods and goal-based withdrawals. The people who invest are parents or guardians on behalf of a minor who is the beneficiary.
These mutual funds which are mainly provided by the major asset management firms in India can be used by investors to save either on a regular basis or by lump sum with the intention of growing their capital in the long run. By the year 2025, the percentage of retail mutual fund folios in the category of children scheme is almost 4 percent, which is indicative of the gradual increase in the awareness of child oriented financial planning.
People also ask
Is it by Children Education Only that All Children Mutual Funds?
No, this money can also be utilized in other costs like marriage, to start a business or even seed money to further studies in a foreign country.
Why should we think of mutual fund schemes of children in 2025?
By investing in a children mutual fund scheme, the benefits will be quite numerous as compared to regular saving accounts and fixed deposits and this is due to the increasing cost of higher education in India. The following are the key motivations why parents will resort to such funds in 2025:
- Possibility of increased returns as opposed to conventional choices.
- SEBI regulations of professional fund management.
- Regular investing either through SIPs or STPs.
- Tax efficiency in section 80C and capital gains.
- Individualised investment term according to milestones of the child.
- Rising inflation and unstable cost of education necessitate early investment. Children pool funds capitalizing on market-based growth and insuring capital the lock-ins.
Did you know
By 2027, the annual tuition in a 4-year engineering course in one of the Indian privates colleges will exceed [?]15 lakh; almost twice as much as in 2020.
How does the Children Mutual Fund Schemes Works?
The children mutual fund schemes are usually open ended funds registered in the name of the minor with the account being managed by a guardian. Here’s the basic process:
- Account Opening: Guardian opens the child mutual fund folio in his name, and offers proof documents.
- Investment Route: Investment options in Lumpsum, Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP) are available.
- Lock-In Click: The majority of the schemes are mandatory till the age of 18 or at least 5 years, whichever is earlier.
- Rules of withdrawal: The withdrawal can only be made by the redemption and after the lock-in and when the child is of legal age.
Depending on the design of schemes, funds can invest in equity, debt or a combination of the two. There are schemes which have insurance cover as an added benefit.
What are the Major Characteristics and Marks of Mutual Funds of children?
The children funds are designed with peculiar features befitting small account holders and their guardians. Top features include:
- Investments to education, marriage, start-up fund, etc.
- Greater returns with the exposure of equity.
- Minimum investment in SIP mode [?]500 per month.
- Section 80C Tax saving (on ELSS-similar children funds only)
- Lock-in imposed to make money spendable on the desired child-centric focuses.
- Free will to change to regular mutual fund folio at maturity.
What are the Advantages and Disadvantages of Children Mutual Fund Schemes?
There are many advantages and disadvantages that should be considered first before deciding on the scheme of the future of your child.
Advantages
- Accumulation of wealth in accordance to long term objectives.
- SIP route enables averaging of cost of investment, hence minimizing risk.
- basket of securities run professionally.
- Personal accident insurance cover is provided in some fund houses.
- Tax efficiency
Disadvantages
- Market risk because returns cannot be assured.
- Lock-in limits liquidity when there is an urgent demand.
- The performance of the funds is dependent on the economy.
- Poor scheme options in comparison with general mutual fund types.
Expert insight
As per fund advisors, investing in a SIP in a mutual fund that deals in children before the child attains the age of 3, can give a corpus of over [?]25 lakh by the age of 18, on an annualised returns of 12% on average returns.
Whom should be invested on Children’s Mutual Fund Schemes?
Such mutual funds are applicable to a wide range of Indian investors, which include:
- Parents who are interested in long-term creation of wealth that was disciplined and to be inherited by the children.
- Grandparents or guardians that are interested in making a meaningful financial gift.
- Couples who are young and looking ahead in case they get children or otherwise.
- Families that would like to get more returns than conventional FDs.
They are not appropriate to very low risk-averse people or those who might require an emergency access to invested capital prior to the expiry of the lock-in.
Children Mutual Fund Schemes that are available in India
Indian fund houses of the major nature are of two major variants:
- Equity Oriented Children Funds: Funds majorly in stocks; riskier, higher returns; are appropriate in longer time periods.
- Debt Based Children Funds: Investment in government and corporate bonds; less risky and less yield.
- Hybrid/ Balanced Funds: A mix of equity and debt; these are set to minimize volatility and deliver a good growth.
The choice will be based on age of the child, years till the goal, and risk appetite of the parents.
People also ask
Which child fund is best for 2025
Presently, HDFC Childrens Gift Fund, ICICI prudential children care fund and SBI Magnum children benefit fund are some of the best performing funds.
The Dilemma of Selecting the Right Children Mutual fund in 2025
The choice of the appropriate scheme requires close consideration of:
- Track record of performance of funds (at least 5 years)
- Experience and reputation of fund manager of AMC.
- Debt to equity ratio.
- Liberality and openness of rules on withdrawal.
- Other perks such as insurance cover, CRISIL or Value Research rating etc.
- Commission and costs (Expense ratio, exit load)
Comparison of Current Top Children funds (2025 Data):
| Name of the scheme | Category | 5YR CAGR (%) | Lock in (yrs) | Expense Ratio (%) |
|---|---|---|---|---|
| HDFC Children Gift Fund | Hybrid | 13.21 | 5 | 1.27 |
| SBI Magnum Children Benefit Fund | Hybrid | 12.87 | 5 | 1.18 |
| ICICI Prudential Child Care Fund | Hybrid | 11.94 | 5 | 1.24 |
| Axis Children Gift Fund | Hybrid | 10.345 | 5.00 | 1.50 |
Mutual Fund Investment of Children in the tax implications
Taxation plays a very important part in investing in any mutual fund including those that are based on children.
- Equity-oriented funds that are classified as long-term gains are taxed at 10 percent in case the gains are above [?]1 lakh/year.
- In the case of debt funds, taxation at 20% is on gains after 3 years with the benefit of indexation.
- The guardian has to pay tax up to the child becoming major, after which the child.
- Section 80C only allows deductions on a limited number of children funds, mostly those in the ELSS style.
Did you know
Since FY2024-25, the clubbing provisions shall refer to the income received in the name of the child provided the child is a minor excluding certain exemptions.
SIP Ur Lumpsum: Which is the Better Investment Method to use in Children Mutual Funds?
Investors have an option of either Systematic Investment Plans (SIP) or lumpsum investments:
SIP
- Routine, disciplined method of investing.
- Minimizes effects of market volatility (rupee cost averaging)
- As low as [?]500 per month
Lumpsum
- Appropriate when you already have one that is of substantial size (even a bonus)
- Possibly more dangerous when invested in the market high.
Nearly three-quarters (78 percent) of all new investments made by children into mutual funds in 2025 will be through SIPs, as regular investing is becoming more popular.
Opening a Childrens mutual fund account in India
It is simply opened by opening an account:
- Complete KYC forms of guardian (Aadhaar, PAN, photographs, address)
- Present minor birth certificate and guardian child relationship documents.
- Select fund and mode (Direct or via distributor)
- Establish SIP or lump sum investment.
- Get confirmation and statement of accounts.
The procedure has become paperless and fast as most fund house sites or fin-tech applications allow one to open an account online.
People also ask
Is Child Capable of running the Mutual Fund Account?
No, the child is not allowed to work until he or she is 18. After KYC update and presentation of proof, they are allowed to control after the age of 18.
Best Secrets to Bad Ideas when It comes to Children Mutual Fund Schemes
Investments in naming a child should not accept the following mistakes:
- Failure to match fund selection and investment horizon and risk profile.
- Cessation of SIPs in down markets.
- Comparing past returns alone, ignoring expenses ratios.
- Failure to increase the value of SIP on an interim basis as income increases.
It is best to monitor regularly, and keep an eye on the goals.
Substitutes of Children’s Mutual Fund Schemes
Other children financial planning instruments other than mutual funds:
- Sukanya Samriddhi Yojana (only girl child)
- Children’s Fixed Deposits
- Public Provident Fund (PPF)
- ULIPs that have child benefit option.
Table of Alternate Options Comparison (2025 Figures):
| Investment alternative | Interest/ Returns | Lock in Period (in years) | Suitability |
|---|---|---|---|
| Mutual Fund of Children | 10-14% (average) | 5 or to age 18 | High |
| Sukanya Samriddhi Yojana | 8.2% (fixed) | Till 21 years old | Moderate-High |
| PPF for minor | 7.1% (fixed) | 15 | Moderate |
| Child FD | 5.5-7.5% | 5+ | Low |
Expert insight
According to the recommendation of the financial planners, a hybrid solution applies where we take the mutual funds to grow, and Sukanya or PPF to be stable and diversify in the debt asset markets.
TLDR or Quick Recap
- The mutual fund products in children assist Indian parents to save towards higher education, marriage or dreams systematically in the 2025 context as costs of the same rise.
- Lock-ins, professional management and higher returns than traditional are associated with funds which have market risk.
- There are equity, debt and hybrid types- select on the need, risk profile and time horizon.
- The most preferred form of investment is SIP, and tax management lies on the guardian.
- Appropriate to long-term investing, which is purpose-oriented rather than emergency based.
Popular Question and Answers
Q1: What are the key risks of mutual funds of children?
A1: Equity and market Fluctuations The funds are exposed to equity and market fluctuations so that if an investment loses money in the short term, it can be termed as the short-term losses.
Q2: Is it possible to withdraw money out of a children mutual fund prior to the maturity date?
A2: Withdrawal before the age of 65 years is usually prohibited because of lock-in effect except under special conditions as prescribed by SEBI.
Q3: Which is superior - children mutual fund or Sukanya Samriddhi Yojana
A3: The potential of children funds is greater in terms of returns, but Sukanya is safer with a fixed interest, and only among girls.
Q4: Is both child and parent required to do KYC in such schemes?
A4: Yes, KYC is done by guardian during investment. After the age of 18, the PAN and KYC of children are mandatory.
Q5: What will accumulate after depositing [?]3000 monthly SIP of 15 years in the top children funds?
A5: With the assumption of 12% annualised returns, the corpus has the ability to surpass [?]12-14 lakh and this is tax efficient, as opposed to FDs or RDs.
Sources
- AMFI India Directory of Mutual Funds.
- SEBI Regulations of a Mutual Fund.
- Value Research Childrens Fund 2025 Rankings.
