Mutual Funds

HDFC Children’s Gift Fund: Proving its mettle over the long term

Dhuraivel Gunasekaran | Updated on July 14, 2019 Published on July 14, 2019

The fund has clocked a CAGR of 17 per cent over the last decade

Children’s plans offered by mutual funds are hybrid funds investing in the mix of equity and debt assets. They have a lock-in of at least five years or till the child attains 18 (whichever is earlier).

These funds allow investment only in the name of a minor child — less than 18 years old — on the date of the investment. The applicant can be the parent, step-parent, grand-parent, adult relative or friend. Few AMCs allow trusts and corporate entities also to invest in the child’s name.

HDFC Children’s Gift is one of the best-performing funds in the category, investing 65-75 per cent in equity and rest in debt papers. The fund has clocked a compounded annualised return (CAGR) of 17 per cent over the last 10 years. The peer schemes in the category such as ICICI Pru Child Care - Study Plan and UTI Child Care investment plan delivered a CAGR returns of 15 and 11 per cent respectively during the same period.

This fund can be a long-term bet for investors who want to save for their child’s higher education, a dream wedding or to secure a good lifestyle. The fund provides personal accident insurance to the guardian. The cover, provided to the parent or legal guardian and not to the child, is 10 times the value of the outstanding units, subject to a maximum amount of ₹10 lakh per unit holder. The insurance premium is borne by the AMC. The compensation is payable to the child.



The fund has been an outperformer among peers across most time-frames. It has delivered CAGR returns of 6, 11, 11 and 15 per cent over one-, three-, five- and seven-year time-frames respectively. The category generated 4, 9, 9 and 12 per cent returns respectively, during these periods.

The fund has not only delivered higher returns during market rallies but also capped losses well during market downturns. During the bear markets of 2011 and 2015, for instance, the fund proved its mettle by outperforming the category by 10 and 3 per cent respectively. In the bull phases too (2012 and 2017), it outpaced its peers by 7 per cent and 5 per cent respectively. A relatively higher exposure to mid-cap stocks in its equity portfolio, spicing up returns, has helped the fund top the charts.

With a mix of 70:30 respectively in debt and equity (on an average over the last three years), the fund has maintained a well-balanced portfolio. On the equity side, the fund favours businesses with superior growth prospects and good management, at a reasonable price. The large- versus mid- and small-cap ratio stood at 60:40 as per the latest portfolio.

On the debt side, the fund takes calls based on the interest rate movement in the market. Over the last one year, it increased its exposure to corporate debt, while cutting its allocation to G-Secs. Currently, the fund has invested 19 per cent and 7 per cent of assets in corporate bonds and G-Secs respectively.

In the AA+ category of bonds, the fund has about 4.8 per cent exposure to papers of Axis Bank, Hero fincorp and SBI. The average maturity of portfolio as of June 2019 was 2.6 years.

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