I want to invest for next 15 years, for my 4-year old child’s higher education. Should I invest in children funds like HDFC Children's Gift fund or choose any diversified equity fund that offers good returns. Is there any benefit of taking funds specific to children?
Investments in Children specific funds are made in the name of the child, with parent as the guardian of the folio. You don’t have too many options if you look for child-specific plans, and HDFC Children’s Gift fund is the highest rated fund among the eight of such funds.
Investing in a child’s name is not very convenient as it requires multiple clearances from the linked bank.
When you file an application in your child's name as the guardian of the folio, the AMC will require your PAN details, bank account number and an address proof. If the investment is routed through your account you need to fill a Third Party Payment Declaration form and submit this along with an acknowledgement letter from the bank manager certifying that you maintain a bank account with the said bank and other relevant details (account number, branch code, account type, bank statement, copy of standing instruction to the bank in case of NEFT/ RTGS/ ECS).
If you want to transact through a child’s account, you will again need to furnish an acknowledgement letter from the bank manager certifying you as the child's guardian and an account holder in the bank, along with other relevant details of the child's account.
Also, tax incidence for minor children falls on the parent or guardian of the child. Whatever money you invest in your child's name will be your taxable income.
A more convenient way to go about this might to be invest in a good diversified fund, since investing in child's name is neither convenient nor tax-efficient.