SBI’s new Children’s fund focus on return optimisation

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On Monday (7th September 2020), SBI Mutual Fund announced the launch of the SBI Magnum Children’s Value Fund-Investment Programme. As part of SBI Magnum Children’s Benefit Fund, which is a primarily debt-oriented deal, the investment option is a new offering.

The scheme’s expense ratio is capped at 2.25 per cent of the assets. There is no dividend option, and it will allow only a growth option.

The product will have a 65-100 per cent equity allocation. Therefore, it will be taxed as an equity scheme. This means that short-term capital gains tax of 15 per cent will apply for holding periods of less than one year, and a long-term capital gains tax of 10 per cent will apply for longer holding periods. The fund will follow a multi-cap approach for the equity portion.

The fund house believes that such sort of solution-oriented lock-in schemes allow investors to remain invested in the scheme for a longer period and reap the benefits of building long-term wealth. Navneet Munot, SBI Mutual Fund’s Chief Investment Officer says that this kind of product provides plenty of discipline to stay invested for longer periods. The fund manager has an option in this scheme to switch from 65% of the equity to 100% based on different market conditions and attempt to maximize returns over time.

The system has a lock-in for at least five years or until the kid hits the majority age, whatever the age of majority. This scheme would invest primarily in equity & equity related instruments including equity ETFs with a minimum of 65% up to 100%, debt including debt ETFs and money market instruments up to a limit of 35% in REITs & InvITs up to 10% and up to 20% in gold ETFs.

There are currently plans for children provided by fund houses such as HDFC MF and UTI MF. Data from Value Research showed that the SBI Magnum Children’s Benefit Money-Saving Plan had returns of 7.48 per cent in the last year. The fund has managed to generate returns of 13.68 per cent and 10.25 per cent respectively in the seven-year and 10-year period.

D P Singh, Chief Business Officer at SBI Mutual Fund, said that child-oriented mutual funds are a compelling way for parents to save for the future of their children, as it helps build a separate ‘bucket’ in which they invest only for their children. Such investment segregation will warn them not to dip into and withdraw from this pool for an impulsive or short-term need.

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