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A Mutual Fund Specifically For Child Needs

Axis mutual fund launches a hybrid mutual fund to create wealth for child needs. Lock-in and taxation holds the key in creating wealth for child needs

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Axis mutual fund launches a hybrid mutual fund to create wealth for child needs. Lock-in and taxation holds the key in creating wealth for child needs.

Axis mutual fund has recently launched Axis Children’s Gift Fund, an open-ended balanced scheme targeting investors who want to plan for children’s longer term goals such as higher education and marriage. The initial sale in the new fund offering (NFO) will be from November 18, 2015 till December 2, 2015 while the scheme re-opens for continuous sale and re-purchase on or before December 14, 2015.

Is it all-equity? The scheme is a hybrid mutual fund scheme and hence would typically represent a balanced fund. The mandate to invest in equity and equity derivatives is 40-60 per cent of the corpus while 25-55 per cent may be in debt assets. Cash holdings can be between 5-15 percent to exploit future arbitrage opportunities. The benchmark will be customized with 50 per cent Nifty 50 + 50 per cent Crisil Composite Bond Fund Index. The scheme would endeavor to manage funds actively by diversifying across market capitalization and following a bottom-up stock selection process of stocks.

The returns in a hybrid mutual fund may not necessarily be always lower than an equity diversified fund. Here’s how 5-year comparison between large-cap diversified funds and hybrid funds over 5-year stacks up:

The 5-year return for hybrid funds exceeds equity funds over same period.

Who can invest: Unlike other schemes, in Axis Children’s Gift Fund, the investments, can be made only in the name of a minor i.e. child below 18 years at the time of investment. The investment is to be made under guardianship of parent or legal guardian. Also, there’s a unique provision of ‘Donor’ which allows Grandparents or any close relative to gift this fund to minor investor without minimum cap on the investment limit.

Options available: Axis Children’s Gift Fund offers two options - compulsory lock-in and no lock-in. In case of compulsory lock-in, investment will be locked-in till the unit-holder (being the beneficiary child) is 18 years of age. Investment may be redeemed after the unit-holder is 18 years of age or 3 years whichever is later. For No Lock-in option, investment will not be locked-in and can be redeemed at any point of time at NAV based prices subject to exit load. The scheme would offer growth and dividend options and ideally choose the growth option when the need is to create wealth for child need.

End note: The lock-in option helps to lock-in funds for the child need and not get tempted to withdraw because of short term fluctuations. Consider the fund only if child goal is at least 5 years or more. And remember, the fund will taxed as a debt fund and will be subject to 20 per cent indexation over long term holding of 36 months. Investing in the scheme will be a conservative way of meeting child’s long term needs.