Mutual fund for child: How to select the best mutual funds for kids

Find out how you can plan for your children’s future using mutual funds for children

One of the major life goals of any individual, apart from retirement planning and buying a house, is to help secure their children’s future. The priority is to make sure that you have enough funds to satisfactorily fulfill your child’s educational expenses. Other expenses that your child would need in the future are funds for their wedding, some jumpstarting money that they could use to buy a house, or simply a fund that could be a safety net in times of emergencies.

One of the best ways that you can ensure that you have sufficient funds available for your child’s needs is to start investing in mutual funds when your child is between 1 to 5 years old. This will give you enough time to build a nice corpus that you can conveniently use when your child comes to that age.

First of all, when you search for mutual funds that are best for your child, you’re bound to encounter many instances where you’ll be tempted to opt for a ‘child plan’ that you feel is more specific towards children. However, such child plans are not very helpful in saving up for a child’s future expenses, but instead they’re insurance plans that provide financial protection to your child if something happens to the insured.

A much better way is to go for a regular mutual fund, and keep it regularly invested in using SIPs, keep it untouched and years later you would have a handsome corpus ready for your child. But how should you choose a mutual fund? Choosing a mutual fund depends on a lot of factors, like your primary goal, which we know is your child’s future, a long-term unavoidable expense. The other factor is your risk appetite. Because this is going to be a long-term investment, you can very much stretch your risk level a bit since the effects of market volatility will be reduced over the long term. Thus, based on the primary goal and varying levels of risk, we have gathered some of the best mutual funds for children below.

1) Axis Blue Chip Fund

To begin with, we have chosen a mutual fund with the lowest possible risk. That is because the Axis Blue Chip Fund invests 99% of its portfolio in Large Cap companies and the remaining 1% in Mid Cap firms. This sort of combination makes this a less volatile fund with stable returns that is excellent for long term investment, which makes it an ideal mutual fund child plan.

Estimated returns

3 years - 19.56%     5 years - 12.17%     7 years - 16.59%

2) L & T Mid Cap Fund

In the middle spectrum of risk vs returns, lies the L & T Mid Cap fund. A mid cap fund invests most of its portfolio in companies listed between 101 to 250 on the stock exchange. Mid cap companies have grown out of the small cap bracket and have the potential to break into the elite group of blue-chip companies. Hence, they’re a good option for investment over a long term, especially for children’s future expenses.

Estimated returns

3 years - 9.61%     5 years - 12.18%     7 years - 20.46%

3) SBI Small Cap Fund

Coming to the small cap market means your appetite for risk should be moderately high. But over a long term, investment in small cap funds like the SBI Small Cap Fund can give more than excellent returns. Companies in the small cap have listings of 250 and above, which means that they’re well poised to grow exponentially, leading to good earnings. The SBI Small Cap Fund has a diversified portfolio that can average out losses in case there are any.

Estimated returns

3 years - 15.05%     5 years - 15.93%     7 years - 25.50%

4) HDFC Small Cap Fund

Yet another small cap fund that has a history of consistent performance is the HDFC Small Cap Fund. A small cap fund works best if invested in for a long term, which makes this fund most suitable as a tool to create a corpus for your child and possibly the best mutual fund for child education.

Estimated returns

3 years - 19.56%     5 years - 12.17%     7 years - 16.59%

Mutual funds can be an excellent option of investment if your goal is to save up for your child’s education. It is always best to use separate SIPs for different goals. This will ensure that you do not touch your child’s mutual fund because you know how important it is. In case you’re late to start mutual fund investment for your child and need educational expenses in 3 to 5 years, you can go for short term funds that mostly invest in debt instruments.