Quick Take: You don't need a children's mutual fund

By Morningstar |  22-11-22 | 
 
  • Such funds can be opened only in the name of a minor, it cannot be held jointly.
  • The funds have a lock-in of either five years or till the child attains 18 years (age of majority), whichever is earlier.
  • Early withdrawal may be permitted by some funds with a high exit load.
  • These are hybrid mutual funds, which means that the fund manager has the leeway to decide the mix of equity and debt instruments.
  • Each fund will have its own investing style and allocation towards equity or fixed income. The category currently has wide variation in the asset-allocation with the equity exposure ranging from 22% to 98%.
  • Taxation would depend on the equity allocation, as mutual funds investing at least 65% in domestic equities are subject to equity taxation.

Do you need one?

Psychologically, it offers a specific target and clarity of goal. The lock-in period too enables investors stay invested.

Other than that, these funds do not offer any benefit to investors relative to other categories. It is advisable to consider other pure-play equity and debt funds to have better control over the desired asset allocation and select funds with a long-term track record.

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