Children's Day 2026: Which mutual funds should parents choose to secure their child's future and what mistakes should they avoid?

Children's Day, celebrated on November 14, is a reminder for parents to think about their children's aspirations and financial future. Whether it is funding higher education, supporting overseas studies or building a corpus for other important milestones, investing early can give parents more time to grow their savings.

Mutual funds can help parents work towards these long-term goals, but choosing the right category, maintaining investment discipline and managing risks as the goal approaches are equally important. Should parents choose dedicated children's mutual fund schemes or regular diversified equity funds? What if they have already delayed starting their investments? Here is what financial experts recommend.

Children's funds vs equity funds: What should parents choose?

Planning for a child’s future requires parents to build a corpus that can meet major expenses such as higher education and marriage, which may be several years away. With education costs rising over time, choosing the right investment options and starting early can make a significant difference.


While mutual funds offer different ways to participate in market growth, parents may be unsure whether to invest in dedicated children’s mutual fund schemes or opt for regular diversified equity funds. The choice depends on the investment horizon, risk appetite, flexibility and the need to gradually reduce risk as the financial goal approaches.

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Akshay Kumar Rao, Head-Products, Tata Asset Management told ETMutualFunds that children’s funds offer a dedicated category for investing towards a child’s future, while diversified equity schemes, such as flexi-cap and multi-cap funds, can also be considered for long-term goals.

The choice should reflect the investment horizon and risk appetite of the investor, equally important are the time parents give their investments to grow and the consistency with which they invest, starting early and contributing regularly can help build a meaningful corpus for a child’s aspirations and choosing the right category matters; giving it time and investing consistently matter just as much, he further said.

Anup Bhaiya, Founder, Money Honey Financial Services shred with ETMutualFunds that pure equity-oriented categories can play an important role in funding long-term goals such as higher education and marriage, which typically have a 10–15-year or longer investment horizon. He pointed out that education inflation can be around 8%–10% annually, making it important for investments to generate returns that can keep pace with rising costs.

He recommended flexi-cap funds as the core of the portfolio; mid-cap and small-cap funds can also be considered for longer investment horizons, although investors should account for their higher risks. As the financial goal approaches, multi-asset or balanced advantage funds can help rebalance the portfolio and protect accumulated wealth.

On choosing between children's funds and regular diversified equity schemes, Anup said regular equity funds may offer greater flexibility. Dedicated children's funds generally come with a lock-in of five years or until the child turns 18, whichever is earlier. While this can encourage investment discipline, such schemes may offer fewer choices and greater restrictions. A customised portfolio of regular flexi-cap and mid-cap funds can provide more flexibility and liquidity, provided parents avoid withdrawing money for unrelated expenses.

Common investment mistakes parents should avoid

Parents often have several financial priorities, including household expenses, retirement and their children's education. Balancing these goals can sometimes lead to delays or interruptions in investments. What mistakes should they avoid while building a dedicated corpus?

Anup identified five common mistakes. The first is relying heavily on traditional low-yield products such as fixed deposits, endowment policies and ULIPs without considering whether their returns can keep pace with education inflation.

The second is underestimating the future cost of education by calculating expenses based on today's fees. For instance, a degree costing Rs 15 lakh today could cost Rs 40–50 lakh in 15 years, according to his estimate.

Another mistake is dipping into the child's education corpus to meet household emergencies. Anup said parents should maintain a separate emergency fund covering six to 12 months of expenses to avoid redeeming investments meant for their child's future.

He also cautioned against remaining fully invested in equities until the last few years before the goal. Parents should gradually move money into safer debt-oriented or arbitrage funds two to three years before the child turns 18 to reduce the risk of a market correction affecting the required corpus.

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Finally, parents should not overlook adequate term life insurance. If the earning parent is no longer around, the child's financial goals could be affected if regular investments stop. Term insurance can help protect these goals.

Rao identified three common mistakes: delaying the start of investments, making an initial contribution without following it up with regular investments, and using the child's corpus for other expenses.

He said these challenges are understandable given the multiple financial responsibilities families have to manage. However, following a regular investment plan and periodically reviewing contributions can help parents stay on track and make investing for their child a manageable part of their household budget.

Investing for a child aged 10–12: What should parents do?

Starting early gives investments more time to benefit from compounding. However, parents who have not started investing when their child is young can still work towards the goal. The key is to assess the time available, estimate future expenses and create a realistic investment plan.

Rao said parents should begin by estimating the likely cost of the financial goal, the number of years remaining and the savings already accumulated.

By this stage, a higher household income may also allow parents to make larger contributions and increase them over time. He said a realistic investment plan based on what the family can comfortably invest is more useful than trying to make up for lost time by assuming higher returns.

Anup said that when a child is already 10–12 years old, the investment horizon for higher education may have reduced to six to eight years. At this stage, taking aggressive bets on small-cap funds can be risky. Instead, parents should focus on balancing growth potential with capital protection.

He suggested a balanced growth allocation, with around 50%–60% in flexi-cap funds and 40%–50% in balanced advantage or multi-asset funds. This can provide equity exposure while helping cushion the portfolio against sharp market corrections.

Since there is less time for compounding, parents may need to invest a higher amount every month. Anup also recommended increasing SIP contributions by 10%–15% annually, in line with salary increments, to bridge the investment gap.

Parents can also direct annual bonuses, tax refunds and maturity proceeds from older policies towards the child's goal. These lump-sum amounts can be invested gradually through systematic transfer plans (STPs) over three to six months.

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He further suggested starting an early de-risking process when the child reaches 15 or 16. Parents can gradually transfer accumulated equity investments into liquid or arbitrage funds through STPs, helping protect the corpus two to three years before college expenses are due.

Investment process

Mutual funds allow investments in the name of a minor (below 18 years) across categories such as equity, debt, hybrid, gold/silver, and international funds. In such cases, the child is the sole account holder, and joint holders are not permitted. A parent or a court-appointed legal guardian manages the account until the child attains majority, after which the ownership and control transfer to the child.

For mutual fund investments made in a child’s name, investors must submit valid documents establishing the child’s age and the parent’s or guardian’s relationship with the child. Fund houses typically accept a birth certificate or passport copy as proof, which verifies both details. These documents must be submitted when opening the folio or making the first investment. Additionally, the guardian must be KYC-compliant, and investments can be routed either through the child’s bank account or the parent’s account.

All transactions — including lump-sum investments, SIPs, STPs, switches, and redemptions — can be executed in the child’s account, operated by the guardian. This arrangement remains in place until the child attains majority.

When the child turns 18, all existing SIPs and STPs in the folio are suspended, and the guardian’s authority to operate the account ceases. The folio is then frozen until the now-adult investor completes the formalities to change its status from minor to major. To reactivate the account, the individual must submit a prescribed application form, relevant documents, and a KYC acknowledgement to comply with regulatory requirements.

These funds include a mix of equity and debt, and investors can choose higher debt or higher equity depending on the risk profile and investment horizon. The investment is done in the name of the child and is typically made by a parent or guardian for a minor.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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