Children’s Mutual Funds: A gift that grows with your child

Children’s Mutual Funds is a category of mutual fund schemes designed to build a corpus of a children’s future needs like education, marriage, general welfare, etc.

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It is not uncommon for grandparents to shower gifts on their grandchildren from time to time, be it on special occasions or just to express love towards them without any occasion. Often, the gift is a material one, an expensive toy or clothes or an electronic gadget.

While these gifts are great for providing instant happiness to your grandchild, a better form of gift that could potentially secure the future of the child is to gift an investment meant to provide for the his / her higher education.

Why build a corpus dedicated for your grandchildren’s education?

As the world becomes more competitive each passing day, the need for, not just education, but quality education is on the rise. In order to face the ever growing challenges posed by job environment, people are increasingly pursuing professional courses from premium institutes. Moreover, in today’s context, the cost of child care, especially the cost of education, is on the rise at a faster rate than the average level of inflation. Premium institutes have the pricing power and inflation will take these numbers higher year after year. One needs to be aware of the same and the cost of education should not come as a surprise. Nobody would want finances to get in the way of their child’s dreams and it calls for better preparedness through regular savings with a goal in mind.

Investing towards your grandchildren’s future also helps you manage your estate more efficiently. As you near your sunset years, a reduced, but sufficient enough estate, would be ideal as you prepare pass on your wealth to the next generation.

Children’s Funds – A Gift that Grows Along with the Child

Children’s Mutual Funds is a category of mutual fund schemes designed to build a corpus of a children’s future needs like education, marriage, general welfare, etc. It’s a unique offering in this category of mutual funds, allows a grandparent or any other person to gift units of the fund to a child under 18 years of age. While investing in the fund, you as grandparent can be the donor, the parent is the stated guardian and the units are held in the name of the child.

While you can make a one-time gift of investing in the fund, a better and a sustainable way to build a sizeable corpus for your grandchildren’s future would be to opt for an SIP or a Systematic Investment Plan. Using SIP, you can gift your grandchildren units of the fund on a periodic basis, say monthly. A SIP is a more disciplined way of investing allowing you to navigate the ups and downs of markets over a medium to long term period.

Especially in goal-based investing, there is an element of mental accounting wherein the investment is earmarked for a specific purpose, children’s education in this case. Since the investment is tied to this goal, the investor is automatically disciplined to use these funds only for the predefined purpose and not for any other financial requirements. A parallel can be drawn here to the money invested in a Provident Fund. Money invested in Provident Funds are meant for retirement – investors therefore are reluctant to utilize that money for other purposes, like buying a car or going for a foreign vacation, for instance. Investors hold on to such investments with discipline till they actually retire. Therefore, goal-based investing helps investors in preventing overspending on less important requirements. As a result, a sizeable corpus can be built over a period of time.

(By Shyamali Basu, Senior Vice President & Head – Products & Marketing, HDFC Asset Management Co Ltd)

Disclaimer: Mutual fund investments are subject to market risks. Also, this is the personal view of the author. Readers are advised to consult their financial advisor before making any investment

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