Mutual Fund alert! Is it wise to invest in children's funds? Check experts' verdict

Mutual funds investment is expected to gain further momentum as investors look to take advantage of the equity markets which are rising to new highs. Also, bank deposit interest rates are unable to beat inflation in the long-term perspective and this is also luring investors to stock markets. However, when it comes to mutual fund investments meant for the better future of one's child, people want to park their money in a mutual fund plan, which is customised for kids. Mutual fund houses offer such customised mutual fund plans to the would-be parents promising a better future for their child. Such funds rake in money, particularly on occasions like Children's Day etc. However, if we go by the expert opinion, their verdict is quite different.

Differentiating between the normal mutual funds and children's funds, Harshvardhan Rungta, CFP at Rungta Securities said, "By offering children's funds to the parents, mutual fund houses play with the emotions of parents. What they offer in a customised child fund, normal mutual funds also provide but what a normal mutual fund provides, children's fund doesn't provide. The first and foremost difference between a normal mutual fund and a child fund is the lock-in period. In child funds, there will be a lock-in period of three to five years while in normal mutual funds, there is no lock-in period. If someone has to fish out their money from the investments in mutual funds, then in case of child fund, one will have to pay the penalty for pre-mature withdrawal while in normal mutual fund there is no withdrawal." 

Therefore, Rungta said that rather than investing in children's funds, one should invest in mutual funds for the long-term and maintain freedom while withdrawing or investing.

On why one should avoid children's funds and choose normal mutual funds, Kartik Jhaveri, Director — Wealth Management and Transcend Consultants said, "Not just the Exit Load, there are some other demerits in child funds. You invest to attain financial freedom, which is not there in the child fund. Having a lock-in period of 3 years to five years, your money gets choked for that period and for a child fund, three years or five years is of no use. A mutual fund investment for three to five years might help you manage finance for the admission of your child that you can also garner through debt mutual fund, multi-cap or large-cap mutual funds. So, why to invest in children's funds?" 

Jhaveri strongly recommended normal mutual funds with the better financial freedom to the investor as a better option than a child fund.