Saving for Children: THE MF route

Indians have a strong family bonding than any modern community. Saving for children is one of its visible signs. Securing future of the children, some times takes the tax route through the Sec 80 of the Income tax Act 1961. Insurance companies have done their bit eversince the segment was open for private entry ever since year 2000. The PPF, NSC, PO FD, PO RD, Bbank RD and Bank FD are additional sources for saving for children. Among all these, the MF route is substantially longer and one need not specify the time limit for saving if properly allocating funds depending upon the age of the child. Unlike the insurance shemes that take huge upfront cut, the MFs provide substantial investment growth opportunities - The effects of compounding is properly harnessed in the MF for an early start, systematically in the same market conditions with similar asset allocations.

Saving through the Mutual Funds have been there from the days of CGGF-1981 from the erstwhile UTI. The reforms in the capital markets, especially the shift from the fixed interest regime made such products unviable and finally faced closed down by 2003. But by that time, market related saving schemes from the private MFs have stabilised in tge market along with the CCP-1993 from the UTI MF. Today, CCP-1993 is the largest fund among the children's segment with over Rs.2369 crores as at June 30, 2008.


In fact UTI offers two schemes for children: the CCP-1993, a balanced scheme with maximum 40% allocation to equity and another CCP Advantage Fund 2004 that has a majority equity allocation. The upper age limit is capped at 15 years for entry into CCP. The AUM of advantage Plan stood at Rs.23.42 crores by June 30, 2008.

Tata Young Citizens Fund 1995 had an AUM of Rs. 141.07 crores in june 30, 2008.

Templeton India CAP-Education Fund 1998 provides for withdrawal maximum 4 times befor the child attain 18 years of age. But in their Gift Fund option brought in 2005, one can withdraw partially or fully after 18 years of age only.

HDFC Children's Gift Fund was introduced in February 2001. The Savings option is emphasizing a bond flaour wheras the Investment option is concetrating on equity flaour. The AUM of Investment option crossed Rs.124 crores in June 2008, whereas the Savings option, AUM, hardly inching above Rs 51 crores during the same period.

ICICI Pru Child Care Study plan of August 2001 has clearly mandated it for children of age 13-17 years with majority asset allocation for bonds. The gift plan, but, concentrates on equity asset allocation and mandated it for children upto 13 years of age. The AUM of of Study plan was 27.5 crores whereas that of Investment plan stood at Rs 114.81 crores in June 30, 2008

Principal Child Benefit Super Saver (Career Builder) Paln was also launched in August2001. 7, 10 and 15 years lock-in are available in this plan and anytime entry is possible. However in the Future Guard plan, the annual SIPs only is permitted. It has got additioonal life cover of the beneficiary child upto 50,000.

LIC MF Children Gift Fund launched in October 2001, has got AUM of Rs. 7.88 crores. Highly skewed equity allocation exists as on June 2008.

Magnum Children's Benefit Plan was launched in January 2002. Its asset allocation is skewed to bonds. AUM Rs 20.07 Crores


BOB MF Children Fund 2004 has got Gift plan and also study plan. The smallest in size is yet to cross Rs1 crore in AUM.


What is the logic in having a specific children oriented scheme when the child grow in age, the re-purchase goal is nearing excercise. So how can one have a moving target focussed with respect to fund management?

Looking from the angle of customer, I would put it like this: When your child is above 15 years of age, his need for money is sure to arise in 1-3 years. Depend upon the Fixed Maturity Plans or CPOSs instead of any of the above detailed products.

But if you are looking for Saving for children in 12-15 years age, you may be lured to put the 'plain children schemes'; DO NOT GO full throttle: Put 60% of your funds in an Equity scheme of above list and the balance in Fixed Maturity Plans or CPOS. Here you may even look at the traditional products in comparison to the MF products and take a learned decision as far as the goal amount required, especially the debt allocation. The 60% equity allocation will help you top up your gains or limit your lossses. The danger is that an astute sales person, may lure you to believe that a standard portfolio will give you the same result: which is untrue. Your goal horizon, is your own; it is not the same as that of the Fund that he is promoting.

If your child is in 10-12 age bracket, the goal is 8-10 years away. You can go for any of the balanced schemes given above or any of the diversified funds or index funds upto 80% of your asset allocation. The balance 20% shold be in MMMF/Liquid MFs to provide liquidity support to your portfolio. suppose the market is in a bear phase. You can use the funds to buy more additional equity investments for your baby.

When you invest for 5-10 years of age, you can buy equity 'children funds' . If it is a rising market like 2005-2008, equity will increase your wealth, but adequate care has to be made to shift to balanced fund when fluctuations like post Jan 2008 occur. The created wealth in the market become usable only when you repurchase and transfer it into another asset.

When investing for kids up to 5 years of age, you can gor equity schemes or balanced schemes depending upon the market cycle at the time of your entry. Some people are of the opinon that one should not be investing for children below 5 years. However, compounding principl esaya that earlier the better; larger the better. So have a SIP.

The wisdom says that balanced funds perform better in asset allocation strategy over longer periods of time than equity as the latter has more expenses eating into the fund corpus.