X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Are Children Benefit Plans really worthy? - Outside View by PersonalFN
 
 
Are Children Benefit Plans really worthy?

Educating your children is your top most responsibility towards them in today's age. But along with that you must have planned dozens of things for them. May be, you want to celebrate her every birthday by throwing a grand party. Buying your son a bike as soon as he turns 18 must be also on your list. And yes, the list would be incomplete without a mention of a big bang wedding.

With growing cost of education, many of you must have recognised the need of investing systematically for your child's education. However, other expenses often go unplanned and may put strain on your finances. Being aware about various expenses associated with your child and her upbringing; various companies launch a number of financial products. These products claim to take care of most of these expenses. Hasn't anybody tried selling you a "childcare" investment plan which you later found out was a costly Unit Linked Insurance Plan (ULIP)? People hardly bother about calculating estimated returns that may be earned on their traditional plans. Mutual Fund houses too have launched products which they claim to have designed especially to take care of childcare expenses. ULIPs and endowment plans don't offer adequate insurance and they don't generate adequate returns either. It now remains to be seen how specially tailored products offered by mutual funds have performed and if they really hold any merit. Let's find out...

Idea of launching specialty children benefit funds was to infuse the habit of regular saving in investors. Thus exiting from these funds is discouraged by charging heavy exit loads which go as high as 4% and minimum investment period is also set higher. However, retaining investments for long doesn't guarantee good performance. We must find out how funds have fared.

Performance of Children's Benefit Mutual Funds
  Average Returns Average Risk-Ratios
6-Mth (%) 1-Yr (%) 3-Yr (%) 5-Yr (%) Std. Dev (%) Sharpe Ratio
Children's Benefit MFs- equity oriented -4.3 6.9 3.3 7.2 3.98 -0.01
Children's Benefit MFs- Debt oriented 0.5 7.5 7.2 8.0 1.36 0.06
Balanced Funds -4.1 8.0 3.2 7.6 3.67 -0.01
S&P BSE 200 -6.7 7.5 -0.1 5.3 5.26 -0.04
Crisil Balanced Fund Index 0.1 10.7 4.5 7.7 3.43 -0.01
Returns above 1-yr are compounded annualised
NAV Data as on June 24, 2013
(Source: ACE MF, PersonalFN Research)

For purpose of comparison we classified children's benefit funds in two categories viz. equity oriented and debt oriented funds. Equity oriented funds have a flexibility to hold 65% or more in equity and equity related instruments. While debt oriented funds are mandated to hold less than 35% in equity assets. Table above suggests that the performance of equity oriented children's benefit funds has been better than that of the broader market index, S&P BSE 200 over last 5 years. However, the category of debt oriented funds has failed to outperform Crisil Balanced Fund Index. It is noteworthy that both categories have been less volatile than their comparable indices. On the other hand average returns generated by the category of equity oriented balanced funds have been better than those of equity oriented children's benefit funds across most time horizons. Moreover, they have been less volatile in comparison.

PersonalFN believes investing merely in specialty funds doesn't help fulfill objectives. Same is true in case of children's benefit funds. Most of equity oriented children's benefit funds have underperformed balanced funds. Moreover, in principle, those who have a longer time horizon and moderate to high risk appetite may look at equity oriented balanced funds instead of locking money in debt oriented children's benefit funds. PersonalFN is of the view that, you shouldn't get carried away with the name of the fund and instead chalk out your financial plan and maintain your asset allocation. Plain diversified equity funds would also suffice in your objective of providing the best to your children.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

 

Equitymaster requests your view! Post a comment on "Are Children Benefit Plans really worthy?". Click here!

2 Responses to "Are Children Benefit Plans really worthy?"

Rama O Rama

Jul 15, 2013

They are all a big hoax on people who invest in them.

Like 

Bala.S

Jul 4, 2013

Good analysis however fund comparison should be done taking one or two bench mark funds, we have not clue what funds were categorised under Children's Benefit MFs- equity oriented , Debt oriented etc.. Second at least u need to add the Rsquare ration along with std dev and sharpe ratio and a quick glance at the above table tells that the debt funds was the best performing fund and not sure how personalFN is recommending to move to Equity oriented funds..?

Like 
  
Equitymaster requests your view! Post a comment on "Are Children Benefit Plans really worthy?". Click here!
 

More Views on News

The Right Financial Advisor Is Around the Corner (Outside View)

Mar 10, 2016

An opportunity to find an impeccably trustworthy and competent financial guardian is in the offing.

Why financial planning should be dull and boring (Mutual Fund Corner)

Feb 29, 2016

Most financial planners come out as whiz kids who throw around financial jargon. But financial planning can be actually easy, provided one follows a disciplined approach.

What Are E-Wallets And How To Use Them (Mutual Fund Corner)

Feb 12, 2016

PersonalFN highlights the benefits of parking a portion of your expenses in e-wallets and using them efficiently.

Is Consumption Boom Over In India? (Mutual Fund Corner)

Feb 2, 2016

Mutual funds take a bearish call on the FMCG sector. The sector has started playing out due to a combination of slower growth and expensive valuations.

How to Find a Saint Amongst Sinners? (Mutual Fund Corner)

Feb 1, 2016

Ethical practices help build long lasting relationships, and healthy long-term business relationships are often mutually rewarding. But PersonalFN is of the view that the financial services industry in India seems to have forgotten this.

More Views on News

Most Popular

Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

Aug 7, 2017

The data tells us quite a different story from the one the government is trying to project.

Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

Aug 4, 2017

The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

Aug 8, 2017

Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

Signs of Life in the India VIX(Daily Profit Hunter)

Aug 12, 2017

The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

Aug 7, 2017

Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

More
 

Become A Smarter Investor In
Just 5 Minutes

Multibagger Stocks Guide 2017
Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS