Children's Mutual Funds Gain Momentum as Long-Term Investment Choice for Education Goals

Children’s mutual funds are steadily gaining popularity among investors who are planning long-term financial goals for their children, especially higher education. Data shows that this once niche investment category has seen strong growth over the past five years, driven by rising awareness, disciplined investing features, and the need to beat education inflation. With assets under management (AUM) growing sharply and investor participation increasing, children’s mutual funds are emerging as a serious long-term investment option.

AUM Sees Nearly 160% Growth in Five Years

According to data from ICRA Analytics, the total AUM of children’s mutual funds has increased by around 160 percent over the last five years. In November 2020, the combined AUM of this category stood at approximately ₹9,800 crore. By November 2025, it had grown to nearly ₹26,000 crore.

Along with AUM growth, investor participation has also expanded. The number of folios in children’s mutual funds has risen to around 32 lakh, indicating growing acceptance of goal-based investing for children.

Which Category Do Children’s Mutual Funds Belong To?

Children’s mutual funds fall under the “solution-oriented funds” category, similar to retirement-oriented mutual funds. These schemes are designed to meet specific long-term goals rather than short-term wealth creation. Most funds in this category come with a mandatory lock-in period, which encourages disciplined investing and reduces the temptation to withdraw money prematurely.

Despite strong AUM growth, the number of schemes in this category remains limited. Currently, there are around 12 children’s mutual fund schemes available. Five years ago, this number was close to 10, showing that growth has largely come from existing schemes rather than frequent new launches.

Growth Driven by Existing Schemes

According to Prableen Bajpai, Founder of FinFix Research and Analytics, most of the growth in this category has come from established schemes. Over the past five years, only two new children’s mutual fund schemes have been launched.

This suggests that investor awareness about children’s mutual funds is increasing gradually, but fund houses are still cautious about expanding aggressively in this segment.

Majority of AUM Concentrated in a Few Schemes

Another notable trend is the concentration of assets. Nearly 78 percent of the total AUM in children’s mutual funds is invested in just three major schemes. This indicates that investors tend to prefer well-known and long-standing funds when it comes to planning for their children’s future.

Most schemes have a lock-in period of either five years or until the child turns 18, whichever comes earlier. This structure is particularly useful for education planning, as it enforces long-term discipline and aligns well with academic milestones.

Returns Depend on Investment Strategy

Returns from children’s mutual funds vary depending on the investment strategy adopted by the scheme. Some funds follow a flexi-cap approach, investing across large-cap, mid-cap, and small-cap stocks, while others follow a hybrid strategy combining equity and debt.

Data discussed by experts shows that the average compounded annual growth rate (CAGR) for this category over a three- to five-year period has ranged between 20 percent and 30 percent. However, actual returns depend largely on the level of equity exposure in the portfolio and overall market conditions.

Avoid Short-Term Return Comparisons

Experts advise investors not to judge children’s mutual funds based on one-year returns. Equity-oriented investments should ideally be evaluated over a minimum horizon of five years or more. Short-term performance can be volatile and may not reflect the fund’s long-term potential.

This long-term perspective becomes even more important when considering education inflation, which is estimated to be around 10 to 12 percent annually. To meet future education costs, investments must generate returns that comfortably outpace inflation.

Children’s Funds vs Creating a Separate Portfolio

Parents can also build a separate portfolio for their children using flexi-cap or hybrid mutual funds. However, children’s mutual funds offer a unique advantage in the form of goal-based investing and enforced discipline through lock-in periods. This reduces the risk of withdrawals for unrelated expenses and keeps the investment focused on the intended objective.

Popular Children’s Mutual Fund Schemes

Some of the well-known schemes in this category include:

• SBI Magnum Children’s Fund

• ICICI Prudential Children’s Fund

• HDFC Children’s Gift Fund

• Tata Children’s Fund

• UTI Children’s Fund

Future Outlook for Children’s Mutual Funds

If investor awareness continues to improve and more fund houses enter this segment, children’s mutual funds could see steady and sustainable growth in the coming years. With rising education costs and increasing focus on structured financial planning, this category is becoming an important option for long-term investors.

For parents planning their children’s future, children’s mutual funds offer a disciplined, goal-oriented investment route that aligns well with long-term education needs.

Disclaimer: Investment-related information reflects expert opinions and market data. Investors should consult a certified financial advisor before making any investment decisions.