MUMBAI: Children’s mutual funds, which has clocked an impressive annualised growth of around 21.08% over the past five years, is expected to register a double-digit growth in the coming years. Rising cost of education, which has been increasing by 11–12% annually, and the superior returns generated by these funds are driving parents towards market-linked instruments for long-term planning, Icra Analytics said in a report.
As a result, assets under management of children’s mutual funds has soared 160% in the past five years to touch Rs 25,675 crore in November, up from Rs 9,866 crore in November 2020, the report said, adding the number of folios is close to 32 lakh in November as against 29 lakh in November 2020, clearly signalling a growing interest and appetite for such funds.
There are close to 12 such funds available in the market now and some of the top-performing funds have delivered average annual return of 15-20% in the last five years, making these funds a favored choice among parents for securing their children’s education and future milestones, reflecting a clear shift from conventional savings to market-linked instruments.
“Children’s mutual fund sub-category has witnessed strong growth in recent years, driven by rising education costs and the need for disciplined, goal-based investing. Parents are increasingly preferring such funds because they combine equity and debt exposure, apart from offering superior returns compared to traditional options like fixed deposits, and enforce a lock-in period of five years or until the child turns 18, promoting long-term savings.
Top returns from popular schemes have delivered impressive returns, with some plans achieving over 30% annualized returns during the past five years,” Ashwini Kumar, a senior vice-president and head marketed data at Icra Analytics, said. The report says that there is much more larger room for higher growth as the outlook for the children’s funds is highly promising, supported by strong historical performance and evolving investor preferences.
“Over the past five years, the category assets has surged by 160%, reaching Rs 25,675 crore, and this momentum is expected to continue. Rising education costs, which are increasing at 11–12% annually, are driving parents toward market-linked instruments for long-term planning,” Kumar said.
Investors are expecting the funds industry to grow at a 10–18% annually through 2033, and children’s funds, as part of this ecosystem, are likely to see double-digit annual growth. Overall, this category is poised to become a mainstream choice for goal-based investing, offering disciplined savings, tax benefits, and superior returns compared to traditional options, he added.
Top performing children’s funds are the following: SBI magnum children's benefit fund tops the chart with a 34.35% growth in refunds followed by the ICICI Prudential children's fund offering19.14%; the HDFC children's fund (18.46%) and the Tata children's Fund (18.09%) and the UTI children's equity fund (17.65%).