Child Mutual Fund: Nowadays inflation is such that we cannot even imagine. In this era of inflation, parents keep adding money every day for everything from children’s education to their marriage expenses. In such a situation, child mutual fund is a big superhero method which helps in increasing money for a long time. This is a little different from regular mutual funds, and it is very important to understand about it before investing.
By knowing things like lock-in period, withdrawal rules, tax and exit load, you will easily understand what a child mutual fund is and how it can make your child’s future financially secure.
What is Child Mutual Fund?
These are funds created specifically for the future of children, such as to fully cover the fees for higher education or any college. You invest money in it, and it remains locked for 5 years, that is, suppose when your child turns 18 years old, he gets the benefit of this amount. You cannot withdraw money during this period, otherwise the exit load will be deducted up to 4 percent. This lock-in is so that parents do not get greedy in between, and the money continues to reach the target. But you do not get tax benefit in this. That means 80C does not apply in this.
How to open an account in this?
In this, you can open an account online while sitting at home. Parents can complete this process by providing their KYC and child’s birth certificate or passport. Investment will have to be made from the parent’s or child’s bank only, but withdrawals are always in the child’s name. As soon as the child turns 18, you can update the KYC and transfer the name, then you can start withdrawal.
How is a child mutual fund different from a regular mutual fund?
Liquidity is more in regular i.e. you can withdraw it whenever you want. But the advantage of lock-in in child fund is that the money grows for a long time, you cannot withdraw it in between. Returns are also market linked, but remain target focused. This is not for tax saving. That means, the income earned before the child grows up is added to the income of the parents and tax is levied on it.
There are many products sold in the market under the name of child fund, but they are not mutual funds, they can be insurance or ULIP, they have higher charges and different risks. Therefore, always go for pure mutual funds. Some with guaranteed returns have a lock-in of 5 years, 4% exit load and restrictions on partial withdrawals. So check what are the conditions and if you want to keep your child’s future secure, then child fund can prove to be perfect for you. But if you want flexibility then you can choose regular diversified fund.
