Mutual Funds are a great way to invest in the future of a child. Depending on the yields you get, they can facilitate pay for the academic achievement, marriage and even house buying of a child. In this article, we illustrate how a child/minor can be invested in mutual funds.
If you pay for the education of your kids, you may need a fund that enables you to withdraw and pay charges annually or every semester. If all these spending are much less than five years away, short-term funds will perform better than equity funds.
These funds invest in comparatively safer, short-term (1-3 years) debt securities. For the education of a child, we have selected the following short-term fund. If you have to pay these fees/charges for more than 5 years, invest in these equity funds.
Do you know that Child can invest in Mutual Funds?
Yes, A kid (minor) can invest, but through a parent, in mutual funds. It can be a natural parent like a court-appointed parent or legal guardian. The guardian can only operate the mutual fund investment until the kid reaches the age of 18.
The guardian is unable to run the plan after the age of 18. However, existing SIPs, STPs and SWPs will proceed until they are stopped by the kid (who has now reached a majority) by submitting relevant records. Also, when the kid reaches a majority, the kid must provide a change of status application from minor to major.
Which mutual fund should you invest in for a child?
There is a range of children’s plans/children’s gift plans provided by different mutual funds with a 5-year lock-in or until the kid reaches a majority. These funds are little more than ploys for marketing.
A high-performing general mutual fund can deliver far better yields than a family plan. If your time horizon is more than 5 years and you can bear a comparatively elevated amount of danger, you can invest in the resources listed below.
HDFC Small Cap – Small-cap funds perform best on very long-term horizons connected with a child’s investment. HDFC Small Cap Fund has appeared as a coherent out-performer with a considerable margin as well. Particularly in comparison to the HDFC Small Cap Fund benchmark, there were about 10 percent better returns over the past1-year period, 8 percent in 3-year, and 7 percent in 5-year periods.
Franklin Templeton AMC is one of India’s best research and process fund houses and one of its flagship funds is Franklin India Smaller Companies. The fund was introduced in January 2006, soon before the 2003-2007 bull market stopped and the recession struck in 2008.
Midcap Funds – Midcap Funds can invest in companies running from the 101st biggest to India’s 250th biggest listed company. Such enterprises represent 15-20 percent of the total market capitalization of India.
Income tax on investment in a Child Mutual Fund
Transfer of funds from a parent to a kid and vice versa is tax-free. There is also no relevant gift tax. However, for income tax, the income earned by a child from mutual fund investments may be clubbed with the income of the parent. Investing in the child’s name is, therefore not a great way to save income tax.