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Mutual Funds for Kids: Investing for the Next Generation (2023)

Mutual funds for kids

One of the most common pieces of financial advice for adults who want to secure their future is to invest in mutual funds. But what if we introduced kids to the idea of mutual funds? Even though it may seem strange, educating children about mutual funds can be a great way to start them on the road to financial independence and instill financial literacy at a young age. We’ll look at the idea of mutual funds for kids in this post, going over strategies and advantages.

How and Why to Get Started with Mutual Funds for Kids Future?

Aside from saving for retirement and purchasing a home, one of the most important life objectives is to ensure the future of your children. Making sure you have enough money to meet your child’s educational needs at a reputable school should be your top priority. Other costs include starting a child’s career from scratch and paying for their wedding. However, the majority of your child’s life goals can be achieved through education.

There are two approaches to future planning for your kid. Preserving children’s plans is one approach. The majority of them have built-in insurance. The second strategy is to keep the insurance and investment components apart. That means you purchase term insurance separately to cover unforeseen expenses and use equity mutual funds to increase your child’s corpus. In this instance, the latter strategy is more scientific since it keeps savings, investments, and insurance separate.

4 Reasons to Save Early for Your Child’s Education

  • The increasing cost of education: Because tuition has increased at an unprecedented rate over the last few years. To secure more funds, it would be a great idea to start saving early.
  • The multitude of career options: Given the abundance of career options, children may wish to pursue multiple career paths. Having multiple career options is pretty common these days, and I know that my kids won’t be any different. Thus, the best course of action is to start saving early so that your child can spread his wings and learn as much as he desires.
  • The burden of education loan: For most parents, an education loan is a lifesaver, but it’s not always the best option. The education loan repayment will take up more than five or six years of your child’s initial career and monthly savings. Consequently, the child might be slow to start making plans for his future. Furthermore, there are exorbitant interest rates on education loans. Overall, rather than subjecting our children to the burden of student loans, parents should begin preparing for their education in advance.
  • Education in a foreign country: In the last few years, it has become increasingly common for Indian students to pursue higher education overseas. Therefore, the increased expense of attending universities abroad can significantly reduce savings. Therefore, it is best if parents begin to plan it.

Factors to Consider Before Investing in Mutual Funds for Kids

  • Investment Horizon: Establishing the investment horizon should be your priority. The length of time you plan to invest in the fund is known as your investment horizon. This may extend for five years, fifteen years, or even more.
  • Documentation: Making sure you have all the paperwork required to invest in mutual funds for kids is the first step. This covers documentation of one’s identity, place of residence, address, and age. Your bank account number, which is typically required when making an online investment, must also be provided.
  • Returns: The rate of return that a mutual fund for kids offers should be taken into account when selecting one. Past performance as well as additional metrics like historical volatility, tracking error, and expense ratio can be used to calculate this.
  • Risk profile: Selecting a mutual fund for kids that fits your risk tolerance is crucial. Select a mutual fund for kids with low volatility but higher returns if you are looking for moderate returns; on the other hand, select a fund with high volatility but lower returns if you are looking for high returns with high volatility.

Benefits of Investing in Mutual Funds for Kids

  • Early start: Investing early gives you access to compound interest, which accelerates the growth of your wealth over time by generating additional returns on your initial investments.
  • Disciplined investing: Regular investing, even in modest sums, fosters financial self-discipline and assists kids in learning responsible money management skills.
  • Long-term goals: Long-term financial objectives like expanding one’s education, launching a business, or advancing one’s career are well-suited to mutual funds for kids.
  • Professional management: The risks involved with picking individual stocks are decreased by the knowledgeable investment decisions made by mutual fund managers, who have years of experience.
  • Diversification: A diversified mix of securities is provided by mutual funds for kids, which lessens overall risk and the impact of market fluctuations.

Some High-Quality Mutual Funds for Kids

Children’s Fund (Direct/Regular) 1 Yr Returns (%) 3 Yr Returns (%) 5 Yr Returns (%)
Axis Children No Lock in Growth 20.2728 17.7027 14.5353
Axis Children’s Gift Direct Lock in Growth 20.0350 17.5380 14.3677
UTI CCF- Investment Plan  20.5324 17.0561 14.1778
UTI CCF- Investment Plan – Growth- Direct 20.5324 17.0561 14.1778
HDFC Children’s Gift Fund Direct Plan 19.9512 15.7078 14.1322
HDFC Children’s Gift Fund Direct Plan(Lock-in) 19.9512 15.7078 14.1322
UTI CCF- Investment Plan – Scholarship Plan 19.2824 15.9562 13.1270
UTI CCF- Investment Plan Regular Plan-Growth 19.2824 15.9562 13.1270
HDFC Children’s Gift Fund 18.9585 14.7395 13.1096
HDFC Children’s Gift Fund(Lock-in) 18.9585 14.7395 13.1096
Axis Children’s Gift Regular Lock in Growth 18.7340 16.1163 12.8031
Axis Children No Lock in Growth 18.7340 16.1163 12.8030
Tata Young Citizens’ Fund 7 years Direct Plan-Growth 21.5499 17.8371 12.3469
Tata Young Citizen [After 7 years] 20.8337 17.0394 11.3773
SBI Magnum Children’s Benefit Fund Direct-Growth 16.5447 11.1543 11.177
SBI Magnum Children’s Benefit Fund Regular Growth 15.9791 10.4075 10.2900
ICICI Prudential Child Care Fund (Gift Plan) Direct Plan 18.2483 11.8293 10.1395
ICICI Prudential Child Care Fund (Gift Plan) 17.3648 11.0248 9.2913
UTI CCF- Savings Plan – Direct 13.2477 9.7390 7.8773
UTI CCF- Savings Plan (Direct Scholarship Plan) 13.2477 9.7390 7.8773
LIC MF Children’s Gift Fund Direct Plan 12.2984 12.1977 7.8289
UTI CCF- Savings Plan – Regular Plan 12.9971 9.5006 7.6577
UTI CCF- Savings Plan – Scholarship Plan 12.9971 9.5006 7.6577
LIC MF Children’s Gift Fund 11.1928 11.2091 6.8336

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