Children mutual funds: Whats behind their popularity and who are they fit for?

Kolkata: While financial insecurity rises among a large section of the population every year, two things stand out for their rise in price levels. If one of these is healthcare costs, the other is certainly the expenditure on education. Every parent will know it to his/her cost how the cost of quality education is rising in this country. Personal finance experts advice parents that it is not really possible to create a sufficient pool of money for their child's education with the help of fixed deposits and other guaranteed-return instruments. This realisation has nudged many families to entrust their savings with market-linked instruments such as mutual funds.

Children’s mutual funds have registered a dramatic rise in popularity over the past five years. While AUM has grown by around 160% surpassing Rs 25,675 crore as of November 2025, the number of investors has risen too. The folios have risen from 29 lakh to 32 lakh in this time period.

There are a dozen mutual fund schemes in this country that focus on children. These funds mainly put their money in a combination of equity and debt. To promote long-term investment, they carry a lock-in period of five years or until the child turns 18, whichever is earlier.

According to a report by ICRA Analytics, SBI Magnum Children's Benefit Fund has generated the highest CAGR among all children's funds. The rate of returns is about 34.35% in the past five years. As on November 2025, the average compounded annualised returns of these funds stood at near 4%, 14% and 17% for periods of one year, three years and five years respectively. The following are the top five funds in this category. The returns are CAGR and for five years.

SBI Magnum Children’s Benefit Fund (Investment Plan): 34.35%

ICICI Prudential Children’s Fund: 19.14%

HDFC Children’s Fund (Lock-in): 18.46%

Tata Children’s Fund: 18.09%

UTI Children’s Equity Fund: 17.65%

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As the very nomenclature indicates, these mutual fund schemes are designed to help parents to create a cool corpus for their children. Though a lot of parents use these instruments with an eye to the education of children, there is no binding on the end use of the funds. One can use it to help his son/daughter set up a business and for any other expenditure or investment.

There are three main benefits of these funds. These are potential of long-term growth through exposure in equity and promoting the rigour of long-term disciplined investing through the lock-in periods. These funds also help in making goal-based investments. While these funds can carry market risk, especially for the near-term, they often suit investors over the long term when they stay invested through market cycles.