Do you need dedicated children's mutual funds to plan your child’s future?
Many mutual fund advisors think that children-specific mutual funds are a good bet, but they say there are better options available for parents to plan for their children's future.
Mutual fund advisors don't think so. They concede that children-specific mutual funds are a good bet, but they say there are better options available for parents to plan for their children's future. “Child plans provided by mutual funds are generally hybrid schemes. The risk factor varies in different schemes, though. There is a lock-in period which is really helpful for new investors. But, if you have the awareness and have the ability to stand market volatility, betting on a pure equity fund for a long period is a much better option,” says Puneet Oberoi, Founder, Excellent Investment Advisorz.
Big fund houses like Axis Mutual Fund, HDFC Mutual Fund, SBI Mutual Fund, ICICI Prudential Mutual Fund, Tata Mutual Fund and UTI Mutual Fund provide children's plans. The average returns posted by the children’s fund category in the last one year are 7.92%.
Many of these child plans provide different risk options to investors. These schemes have two or three different variants with different equity and debt allocation. Conservative investors can choose a portfolio with a higher debt portion and lower equity portion, whereas those who can afford can opt for higher equity allocation. However, mutual fund advisors believe that investors with some help can create a portfolio with pure equity schemes or hybrid schemes according to their risk profile.
“If you are a high risk -taker and have a long investment horizon, you don’t need to go for a hybrid scheme to meet your child’s goals. You can opt for a large cap scheme or an ELSS. That will give you better returns and will be in line with your risk appetite. Similarly, if you don’t have the appetite for equities, you should stick to debt schemes rather than going for child plans which are hybrid in nature,” says Neeraj Chauhan, CEO, The Financial Mall.
However, mutual fund advisors believe that some investors are not disciplined and they also don’t have the necessary awareness about mutual fund schemes. For such investors, child plans can work well. “Child plans have an emotional value, since it is in your child’s name. If you think that you have a tendency to withdraw money at the slightest issue, stick to child plans. It will give you a drive to continue with your investment,” says Puneet Oberoi.