Contents
Definition
A Children's Fund (also called a Children's Gift Fund or Children's Benefit Fund in older AMC nomenclature) is a SEBI solution-oriented open-ended mutual fund scheme specifically designed for long-term wealth creation targeting a child's education, marriage, or other life-goal corpus. SEBI's October 2017 Categorisation Circular places it under Solution-Oriented Schemes, alongside Retirement Funds. The defining feature is a mandatory lock-in of 5 years or until the child attains majority (18 years of age), whichever is earlier.
Portfolio variants
- Gift/Equity Plan: ≥65% equity allocation. Growth-oriented for long horizons (child under 10). Qualifies for equity fund taxation (LTCG 12.5%; STCG 20%).
- Debt/Conservative Plan: Primarily debt with limited equity. Capital preservation for child approaching 18. Taxed at debt-fund slab rates post Finance Act 2023.
The folio is typically in the parent's or guardian's name with the child as the beneficial holder. Upon the child attaining majority (18), the folio must be re-KYC'd in the child's own name before further transactions.
Regulatory framework
SEBI Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 (6 October 2017) establishes Children's Fund as a solution-oriented category. Key rules:
- One scheme per AMC (all plans/variants under a single scheme umbrella).
- Each SIP instalment carries its own 5-year lock-in clock (same as Retirement Funds).
- Exit before lock-in expiry is permitted only on the death of the investor (not the child) or on the child attaining majority and requesting redemption, subject to completing KYC in the child's name.
- AMFI KYC norms require minor folios to have a guardian on record; guardian changes require fresh KYC.
Tax / cost treatment
- Equity plan (≥65% equity): LTCG 12.5% (>12 months, above ₹1.25 lakh/year), STCG 20%.
- Debt plan (<65% equity): slab-rate taxation for all gains (Finance Act 2023).
- Gains in a minor's folio are clubbed with the higher-earning parent's income until the child turns 18 — per §64(1A) of the Income Tax Act, 1961. This is a critical planning consideration: a child aged 2 with a 16-year investment horizon will have income clubbed for 16 years; the tax advantage of a long holding period (LTCG vs. clubbed income) should be modelled before choosing equity vs. debt plan.
- After the child turns 18 and the folio is re-KYC'd, gains are taxed in the child's hands independently.
Worked example
Parents start a ₹5,000/month SIP in "SBI Magnum Children's Benefit Fund — Investment Plan" (equity-oriented) for their 3-year-old daughter in June 2026. Lock-in per instalment = 5 years (earlier of 5 years or daughter's 18th birthday = 2041). Instalment 1 (June 2026) lock-in expires June 2031; daughter turns 18 in 2041 — so the 5-year lock-in is the binding constraint for early SIP tranches. Gains in 2026–2041 are clubbed with the parent's income until the daughter turns 18. Post-18, she redeems the accumulated corpus; equity LTCG at 12.5% applies. Total SIP over 15 years = ₹9 lakh principal; assuming 12% CAGR, corpus ~₹25 lakh.
See also
Primary source
- SEBI Categorisation Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 (Oct 2017)
- Income Tax Portal — Clubbing of minor's income §64(1A)
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