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How to Invest in Direct Mutual Funds for Your Child Without Overcomplicating It
- Ripradaman R
- Dec 30, 2025
- 2 min read
Introduction
Many parents assume they need special “child plans” to invest for their children.
In reality, these plans add complexity and higher costs.
A simple direct mutual fund approach works better.
When structured correctly, it is efficient, flexible, and cost-effective.
Why Child Plans Are Often Unnecessary
Most child-specific mutual fund plans offer no unique advantage.
Higher expense ratios
Lock-in periods that reduce flexibility
Similar underlying portfolios as regular funds
Direct mutual funds provide the same exposure at a lower cost.
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What Makes Direct Mutual Funds Better
Direct plans eliminate distributor commissions.
Lower expense ratio
Higher long-term returns
Transparent structure
Over long periods, even a small cost difference compounds significantly.
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How to Invest for a Child Legally
There are two common structures parents can use.
Invest in your own name and earmark for the child
Open a minor mutual fund account with a guardian
Both options are valid and widely used in India.
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Choosing the Right Funds
The fund choice should depend on the time horizon.
Equity funds for goals 10+ years away
Hybrid funds for medium-term goals
Avoid frequent switching
Consistency matters more than constant optimization.
Tax Implications You Must Understand
Tax treatment depends on the investment structure.
Capital gains may be clubbed with parent’s income
Equity funds get long-term capital gains benefits
No extra tax advantage for child plans
Understanding tax rules prevents surprises later.
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SIP Discipline Over Lump Sum
Regular investing builds better outcomes.
SIPs smooth market volatility
Encourages long-term discipline
Easier to manage monthly cash flows
Time in the market matters more than timing the market.
Conclusion
You do not need complicated child plans to invest for your child.
Direct mutual funds offer simplicity, flexibility, and lower costs.
A clear structure and long-term discipline are enough to build meaningful wealth.
FAQ
Q1. Are child mutual fund plans better than regular funds?
No. Most child plans are regular funds with higher costs and added restrictions.
Q2. Can I invest directly in my child’s name?
Yes. A minor account can be opened with a parent or guardian.
Q3. Are direct mutual funds safe for long-term goals?
Safety depends on fund selection and asset allocation, not on plan type.
Q4. Do direct plans really give higher returns?
Yes. Lower expense ratios lead to better long-term compounding.
Q5. Is SIP mandatory for child investments?
No, but SIPs are recommended for disciplined and consistent investing.
Citations
Securities and Exchange Board of India (SEBI)
Association of Mutual Funds in India (AMFI)
Income Tax Department of India
Reserve Bank of India (RBI)
Moneycontrol Investor Education
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