SBI Mutual Fund is launching a new fund offer (NFO) SBI Children’s Benefit Fund – Investment Option, which will open for subscription on Tuesday. It is a solution-oriented fund, aimed at parents who want to invest for goals related to their children. SBI Mutual Fund has a similar product which has a more conservative approach.
What does it offer?
The fund will have a lock-in of five years or until the child attains the age of 18, whichever is earlier. For example, if the investment is made when the child is 17 years old, it will be locked in for just one year. There is no maximum period of holding and the child can hold on to the scheme for as long as she likes.
Investment can be made by a parent from the child’s account or from a joint account with the child. It cannot be made from the parent’s bank account. The parent will manage the investment till the child turns 18. Thereafter, the account will be frozen till know your customer (KYC) formalities are completed by the child. Once KYC is done, the child can operate the mutual fund folio for this scheme.
The expense ratio for the scheme is capped at 2.25% of the assets. There is no dividend option in the scheme and only growth option will be permitted.
SBI Children’s Benefit Fund – Investment Option will have an equity allocation of 65-100%. It will, thus, be taxed as an equity scheme. This means that for holding periods of less than one year, short-term capital gains tax of 15% will apply and for longer holding periods, long-term capital gains tax of 10% will apply. For the equity portion, the fund will follow a multi-cap approach (invest in small-, mid- and large-cap companies).
It has given itself the leeway to invest in international equities (up to 35%) and gold (up to 20%) and real estate investment trusts (REITs) up to 10%. R. Srinivasan, head of equity at SBI Mutual Fund, said that although there was no predetermined asset allocation to the two asset classes (international equities and gold), the fund management team had them in its sights.
For the debt portion, the fund will focus on AAA-rated debt.
How does it compare?
SBI Mutual Fund has a similar product in its arsenal but there are some key differences. The existing SBI Children’s Benefit Fund – Savings, which will continue to exist, has a smaller equity allocation of 0-25%, with the rest going to debt, making it more conservative. However, both the funds share the lock-in and some other features.
The Savings fund is positioned as ideal for a child aged 14-18 years since a smaller lock-in will apply for older children. SBI Mutual Fund has, however, decided to discontinue the insurance cover that came with this fund. This was a personal accident and disability cover up to ₹3 lakh per unit holder. The AMC had earlier suggested that talks were on to hike the insurance cover in the scheme, in a conversation with Mint. However, the AMC has not proceeded down this path.
A senior executive at the fund house, who did not want to be named, said that despite having an investor base of around 10,000 and being in existence for almost 18 years, the fund received only about 10 insurance claims in its history.
The scheme is a small one with assets under management of just ₹66 crore. It has given a compounded annual growth rate of 10.32% in the past five years against 9.07% that NIFTY 50 Hybrid Composite Debt 15:85 Index gave.
Keep in mind
Such funds work for people who have specific goals but are not able to create a separate bucket for them. “Solution-oriented funds like the current launch work best for people who have particular goals in mind like child’s higher education and are unable to allocate their other investments to those goals in a dedicated manner. Children’s benefit funds are normally conservatively managed with a large-cap bias in equity and AAA in debt than what an investor will get from a standard multi-cap scheme. However, in this case the wide universe of gold, real estate investment trusts and international equity is a welcome feature,” said Mrin Agarwal, founder, Finsafe India Pvt. Ltd, and co-founder Womantra.