Mutual fund investments are usually meant for long-term investment. Investment experts often advise investors to invest in regular doses and stay invested for a long duration. This investment plays an integral role in helping investors achieve their financial goals such as buying a house, travelling overseas, creating wealth for retirement, and paying for a child's education.
Although mutual fund houses offer open-ended plans such as index funds and debt funds to help investors meet financial goals, there are some schemes that categorically target a specific objective such as children’s education or retirement.
Here we give the lowdown on solution-oriented children’s mutual plans and state their features and uniqueness.
What are solution oriented mutual funds?
These funds are meant to inculcate an investing discipline among investors with an aim to create wealth for their children. These schemes have a lock-in period of five years, subject to the child attaining maturity, whichever is earlier, according to the Sebi's categorisation of mutual funds.
One would wonder that these plans are similar to the ULIP (Unit linked Insurance Plans) aimed at children's education.
Some of the ULIP plans include Max Life Shiksha Plus Super, SBI Life -Smart Scholar and Kotak HeadStart Child Assure, among others.
As a matter of fact, solution-oriented mutual funds are yet to strike a chord among retail investors and lack of awareness could be one key reason for the lukewarm response of these schemes.
“Investing for long term goals like retirement or children’s education has not yet got enough attention from mutual fund investors, as they are not completely aware of the solutions-oriented category. We believe as investors become more aware, more money will flow into this category too, just as child-oriented insurance plans that are already very popular,” says Vishal Dhawan, Founder and CEO of Plan Ahead Wealth Advisors.
Options galore
There are only 10 schemes in this category of solution of oriented funds with total assets under management of ₹16,447 crore, as on July 31, 2023.
Gaurav Rastogi, Founder & CEO, Kuvera believes that these schemes are not popular because of the way they are structured.
"They allow for a max lock-in of only five years which is only marginally higher than the three years of lock-in for ELSS funds which can also provide significant tax benefits. The marginal benefit of two additional years of lock-in pales in comparison to the potential tax benefits. Post lock-in, these funds compete with all other equity plans where the investor may not want to limit their choices," he says.
Some of the popular schemes in this category include HDFC Children’s Gift Fund that has total AUMs of ₹7,308 crore, UTI Children's Career Fund-Savings Plan with total AUMs of ₹4,220 crore and SBI Magnum Children’s Benefit Fund - Investment Plan with total AUMs of ₹1,126 crore.
Other schemes in this category include ICICI Prudential Child Care Fund-Gift Plan ( ₹988 crore) and Aditya Birla Sun Life Bal Bhavishya Yojna (788 crore).
| Solution oriented (children’s funds) | 3-year-returns (%) |
| HDFC Children's Gift Fund | 22.65 |
| UTI Children's Career Fund-Savings Plan | 12.23 |
| ICICI Prudential Child Care Fund-Gift Plan | 18.62 |
| Axis Children’s Gift Fund | 13.86 |
(Source: AMFI; regular returns as on Aug 10, 2023)
Past performance
In the past five years, these schemes delivered a CAGR return ranging between 8-12 percent per annum. The past three-year CAGR returns were, however, higher and range between 15-23 percent per annum.
In the table above, we show the returns delivered by some of the popular schemes in this category in a 3-year period.
To sum up, solution-oriented plans are mutual funds with a lock-in period up to the time the child attains maturity. These plans target investors who are investing for a specific goal such as child’s education.
