NFO review: SBI Magnum Children’s Benefit Fund – Investment Plan, a new child-oriented equity fund

The Investment Plan, which can invest up to 100% in equities, is a new offering as part of fund which currently has Savings Plan, a predominantly debt-oriented offering

Kumar Shankar Roy Sep 10, 2020

Child mutual fund plansLeading fund-house SBI Mutual Fund has launched SBI Magnum Children’s Benefit Fund – Investment Plan, an open-ended fund to enable parents to invest for their child’s dreams. The Investment Plan is a new offering as part of SBI Magnum Children’s Benefit Fund which currently has Savings Plan, a predominantly debt-oriented offering. The NFO period of SBI Magnum Children’s Benefit Fund – Investment Plan opened on September 8, 2020 and will close on September 22, 2020. In this article, we will try to find out if there is anything special in this offering. To know more, read on.

Solution-oriented

SBI Magnum Children’s Benefit Fund – Investment Plan falls under the solution-oriented MF category of schemes. The aim of the scheme is to create wealth over the long-term which can be used to finance any money-related goal your child may have.

The new scheme should not be confused with SBI Magnum Children’s Benefit Fund – Savings plan that has been around for over a decade now.

The new SBI Magnum Children’s Benefit Fund – Investment Plan will predominantly invest in Equity & Equity related instruments including Equity ETFs with a minimum of 65% going up to 100%, Debt including Debt ETFs and money market instruments up to a maximum of 35% in REITs & InvITs up to 10% and up to 20 % in Gold ETFs.

Investing approach

The scheme will invest in a well-diversified portfolio of equity and equity related securities. The fund manager while selecting stocks will focus on the fundamentals of the business, the quality of management, the financial strength of the company, market leadership etc. The scheme will invest across sectors without any market cap or sectoral bias.

Navneet Munot, Chief Investment Officer, SBI Mutual Fund said, “Our strategy would be to create a fund portfolio with a combination of high conviction ideas with a long-term orientation within a robust risk management framework. Equity portion would be market capitalisation agnostic, while Debt portion would be invested in high credit quality portfolio with a short-to-medium duration profile.”

Nitty-gritty of scheme

Since this is a child plan, you may note the following important information.

Investments can be made only in the name of a Minor represented by a Guardian (Adult Resident / Non-Resident Individuals). Payment for the investment can be made by means of Cheque / Online Transfer or any other mode from the bank account of the minor or from a joint account of the minor with the guardian only. So, investments cannot be made in the name of minor from the parent bank account.

Grandparents can transfer funds to the child’s bank account / joint bank account of child with guardian as a gift which could subsequently be used to invest in the fund. A grandparent or a relative can only invest in the name of the child directly, only if he/she is the legal guardian appointed by a court.

Upon the minor attaining the status of major, the minor in whose name the investment was earlier made, will be required to provide PAN, KYC details and updated bank account details, to change the status from minor to major. The investment made in the scheme can continue to remain invested. No fresh investment is allowed after the child turns 18.

Ideal for whom

According to SBI MF, the new plan is beneficial to create wealth for a child aged 1 year ideally going up to when he/she is 14 years old.

Do remember there would be a lock-in period for at least five years or till the child attains age of majority, whichever is earlier. For instance, a child who started investing at the age of 15 will be able to redeem after the child turns 18, as this is earlier than the lock-in of 5 years.

Fund-house speak

Vinay Tonse, MD & CEO, SBI Mutual Fund said: “Funding education of their children is the top priority for any parent. Given the dual challenges of rising cost of education and interest rates coming down significantly, there is a need to look beyond traditional investment options. SBI Magnum Children’s Benefit Fund – Investment Plan is an ideal fit given its construct of being well-diversified across asset-classes, be it equity, debt or gold.”

“Equity asset class as a long-term wealth-creator will help parents in having the right financial support to take care of their child’s future and the sooner they start the better it is,” Tonse added.

Child MF plans

There are various other child plans in the MF mart. They include ICICI Prudential Child Care (hybrid aggressive fund), HDFC Childen’s Gift (hybrid aggressive fund), Axis Children’s Gift (hybrid balanced), LIC MF Children’s Gift (hybrid balanced) and Tata Young Citizens (hybrid balanced). In the pure equity space, there is UTI Children’s Career Investment (equity multicap fund). There is no pure debt oriented child plan.

Below are the returns of various MF child plans. Do note the returns vary depending on the asset class combination. That being said, LIC MF’s child plan has disappointing returns. In the 3-year period, the Tata MF scheme has reported negative return. On the other hand, SBI Magnum Children’s Benefit Fund – Savings plan and HDFC Children’s Gift have shown peer-beating and good returns.

Scheme 3-yr return % 5-yr return % 10-yr return %
Axis Children’s Gift 5.24
HDFC Children’s Gift 4.69 9.18 12.01
ICICI Pru Child Care Gift 3 6.91 8.03
UTI Children’s Career Investment 1.28 8.04 8.19
LIC MF Children’s Gift 1.07 4.76 5.23
SBI Magnum Children’s Benefit Fund – Savings plan 5.07 10.21 10.15
Tata Young Citizens -0.73 4.46 7.35
UTI Children’s Career Savings 1.96 6.03 8.41

As on September 8, 2020 All returns are expressed in CAGR format Regular plans

Fund basics

Minimum investment amount – Rs 5,000

Benchmark – CRISIL Hybrid 35 + 65 – Aggressive Index

Fund managers of the Investment Plan will be R. Srinivasan for Equity Portion and Dinesh Ahuja for Debt Portion.

Exit load – For all investments with respect to units not subject to lock-in period and the holding period is less than 3 years:
* 3% for redemption/switch out on or before 1 year from the date of allotment
* 2% for redemption/switch out after 1 year and up to 2 years from the date of allotment
* 1% for redemption/switch out after 2 years and up to 3 years from the date of allotment
* Nil for redemption or switch-out after 3 years from the date of allotment.

Taxation – Same as for Equity Funds; 10% long term capital gains tax for gains above Rs 1 lakh and 15% short term capital gains tax.

RupeeIQ take

Do you need a dedicated child mutual fund plan to plan your child’s future? The short answer is you don’t. Any long-term oriented mutual fund will do. The exact category of fund in terms of asset mix will depend on which route you want to take. Equity is risky, hybrid theoretically has lower risk. Child plans provided by mutual funds are generally hybrid schemes as you may have noted above. The SBI Magnum Children’s Benefit Fund – Investment Plan is also an aggressive hybrid fund due to its freedom to have higher exposure to equities.

From a product construct perspective, the lock-in period in child MF plans is helpful for new investors who are not disciplined. However, if you have the awareness and have the ability to stand market volatility, you can choose any mutual fund to reach your goal. If you do not have the necessary discipline and want a goal-oriented product where you can simply invest regularly for a child’s goals, consider a child plan. This is ideal for aggressive investors.

Related

Top 5 child-focused mutual fund investment plans

Mutual fund investments made in the name of minor? Here are the changes that you need to know


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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