I am 33 years married and residing in Mysuru. I have a 3 years old daughter. I have been investing in equity mutual funds for the last 2 years. Recently, I came across children's gift funds. I was wondering if I could invest in a children's gift fund for my daughter. Is it a good idea?
Children’s Gift funds are dedicated mutual fund schemes which are positioned as Child plans to meet children’s future financial needs like education, marriage expenses and so on. These are hybrid funds which invest in both debt and equity. These funds can further be classified as ‘Hybrid – Equity Oriented’ (equity exposure 65% or more) or ‘Hybrid-Debt Oriented’ (average debt exposure is around 60% and equity is 40%). Consider this before availing Children’s Gift funds: Check the asset allocation and investment strategy of the fund. Is it debt-oriented or equity oriented or offering both the options? Check the lock-in of the Children’s Gift funds. Investments may be locked-in till child attains 18 years of age. Investments have to be made in the name of your minor daughter only. Check out the expense ratio and exit loads of these funds. Understand the features and analyze the past performances of these funds before buying them. Avoid investing in ‘Dividend option’, as your aim is to accumulate sizable corpus for your daughter's education or/and marriage. You have a three year old daughter and if you are planning for her college education/marriage, it is prudent to invest in a good equity diversified fund or a mid-cap oriented fund rather than in Children’s Gift funds.