A four-year engineering degree that costs Rs 16 lakhs today could cost Rs 40 lakhs in 15 years.
This is not speculation. It is basic math at 6% education inflation.
The reality? Education costs in India are rising at 8-12% annually. That is double the general inflation rate. A college education that seems affordable today becomes a financial burden by the time your child turns 18.
I have helped many NRI parents plan for their children's education over my 12 years as a financial advisor. The most common mistake? Starting too late and choosing funds based on vague "best fund" lists that never explain their selection criteria.
This guide takes a different approach. You will find multiple lists, each using a clearly disclosed criterion. No hidden methodology. No mixing criteria. Just transparent comparisons so you can make informed decisions.
👉 Tip: Before investing, confirm your residential status using Belong's calculator. Your NRI status determines how your investments are taxed.
Why Education Planning Needs a Different Approach
Planning for your child's education is not like planning for retirement. The timeline is fixed. Your child will turn 18 whether your investments perform or not.
The Education Inflation Problem
According to ICRA Analytics data from December 2025, education costs in India are rising at 11-12% annually. Compare this to general consumer inflation at 5-6%.
What does this mean in real numbers?
Current Cost | Years to College | Cost at 10% Inflation |
|---|---|---|
Rs 10 Lakhs | 10 Years | Rs 26 Lakhs |
Rs 10 Lakhs | 15 Years | Rs 42 Lakhs |
Rs 20 Lakhs | 10 Years | Rs 52 Lakhs |
If you are saving at 7% (traditional FD rates), you are losing purchasing power every year. Your money needs to grow faster than education inflation.
Why Children's Mutual Funds?
Children's mutual funds are solution-oriented schemes designed specifically for this purpose. They come with features that regular equity funds do not offer.
Lock-in Period: 5 years or until the child reaches 18, whichever comes earlier. This enforced discipline prevents impulsive withdrawals.
Ownership Transfer: Once your child becomes an adult, the investment can be transferred to their name after completing KYC requirements.
Hybrid Allocation: Most children's funds invest in both equity (for growth) and debt (for stability), balancing risk and returns.
The children's mutual fund category has grown 160% in AUM over the past five years, reaching Rs 25,675 crore as of November 2025. This reflects growing awareness among Indian parents about market-linked investments for education goals.
👉 Tip: Start a SIP early. Even Rs 5,000 per month for 15 years at 12% CAGR can grow to over Rs 25 lakhs. Learn more about SIP vs lump sum investing.
How We Built These Lists
Most "best fund" articles mix different criteria without disclosure. One fund might rank high because of recent returns. Another because of brand recognition.
This guide uses transparent, single-criterion lists. Each list discloses exactly why funds are ranked the way they are.
The Criteria We Use
5-Year Returns: Pure historical performance. Past returns do not predict future performance, but they show how the fund has navigated different market cycles.
AUM (Assets Under Management): Indicates how much money investors have trusted the fund with. Higher AUM suggests stronger investor confidence.
Expense Ratio: The fee you pay the fund house for managing your money. Lower is generally better for long-term wealth creation.
Fund Age: Older funds have longer track records. Newer funds lack sufficient data for fair comparison.
List A: Best Children's Funds by 5-Year Returns
Ranking Criteria: Funds ranked by 5-year CAGR (Compound Annual Growth Rate) as of December 2025. Higher returns rank higher.
Important Disclaimer: Past performance does not guarantee future returns. The fund that tops this list had exceptionally strong equity exposure during a bull market.
Fund Name | 5-Year CAGR | Type | Risk Level |
|---|---|---|---|
SBI Magnum Children's Benefit Fund - Investment Plan | 34.35% | Aggressive Hybrid | Very High |
UTI Children's Equity Fund | 21.34% | Equity | Very High |
ICICI Prudential Children's Fund - Gift Plan | 19.14% | Hybrid | Very High |
HDFC Children's Fund (Lock-in) | 18.46% | Hybrid | Very High |
Tata Young Citizens Fund | 18.09% | Equity | Very High |
Data Source: ICRA Analytics, Value Research, AMFI as of November 2025
The SBI fund's exceptional 34.35% CAGR stands out dramatically. This is because it has over 78% allocation to equity. During bull markets, this delivers stellar returns. During crashes, expect significant drawdowns.
For UAE-based NRIs considering broader investment options in India, children's funds represent just one avenue. Compare these returns with fixed deposits to understand the risk-return tradeoff.
List B: Best Children's Funds by AUM
Ranking Criteria: Funds ranked by Assets Under Management. Higher AUM indicates more investors trust the fund with their money.
Why AUM Matters: Larger funds benefit from lower impact costs and are less likely to be shut down or merged.
Fund Name | AUM (Cr) | Fund Age | Fund House |
|---|---|---|---|
HDFC Children's Fund | Rs 10,179 | 25+ Years | HDFC AMC |
SBI Magnum Children's Benefit Fund - Investment Plan | Rs 5,052 | 4 Years | SBI MF |
UTI Children's Career Fund (Savings Plan) | Rs 4,559 | 30+ Years | UTI AMC |
ICICI Prudential Children's Fund | Rs 1,424 | 24 Years | ICICI Pru AMC |
UTI Children's Equity Fund | Rs 1,129 | 22 Years | UTI AMC |
Data Source: AMFI, Fund House Websites as of December 2025
Notice how HDFC Children's Fund dominates AUM despite not topping the returns list. This reflects decades of brand trust and distribution strength. The SBI fund, despite being relatively new (launched September 2020), has attracted significant assets due to its exceptional recent performance.
For NRIs seeking stability alongside growth, understanding hybrid mutual funds helps in evaluating these allocations.
👉 Tip: Large AUM can be both good (stability) and bad (harder to beat benchmarks). Do not choose funds based on AUM alone.
List C: Best Children's Funds by Expense Ratio
Ranking Criteria: Funds ranked by expense ratio (Direct Plans). Lower expense ratio means more of your returns stay in your pocket.
Why This Matters: A 0.5% difference in expense ratio over 15 years can cost you several lakhs on a large corpus.
Fund Name | Expense Ratio | Min SIP | Min Lump Sum |
|---|---|---|---|
SBI Magnum Children's Benefit Fund - Investment Plan (Direct) | 0.86% | Rs 1,000 | Rs 5,000 |
HDFC Children's Fund (Direct) | 0.90% | Rs 100 | Rs 100 |
UTI Children's Equity Fund (Direct) | 1.20% | Rs 500 | Rs 1,000 |
ICICI Prudential Children's Fund - Gift Plan (Direct) | 1.46% | Rs 100 | Rs 5,000 |
Axis Children's Gift Fund - No Lock-in (Direct) | 1.46% | Rs 500 | Rs 5,000 |
Data Source: ClearTax, Groww, Fund House Factsheets as of December 2025
The SBI and HDFC funds offer the lowest expense ratios among Direct plans. Always choose Direct plans over Regular plans when investing online. Regular plans include distributor commissions, increasing your expense ratio by 0.5-1%.
Learn how to start mutual fund SIP as an NRI to ensure you are investing in the right plan type.
Understanding Fund Types: Lock-in vs No Lock-in
Children's mutual funds come in two variants that serve different purposes.
Lock-in Variants
These funds have a mandatory lock-in of 5 years or until the child reaches 18, whichever comes earlier. You cannot redeem before this period ends.
Advantages: Enforces investment discipline. Prevents emotional withdrawals during market corrections.
Disadvantages: No liquidity for emergencies. Capital locked even if you find better opportunities.
Examples: HDFC Children's Fund (Lock-in), Axis Children's Gift Fund (Compulsory Lock-in), SBI Magnum Children's Benefit Fund
No Lock-in Variants
These funds allow redemption at any time, though exit loads apply if you withdraw early (typically 1-3% within the first 1-3 years).
Advantages: Flexibility to exit if circumstances change. Can be used for intermediate education milestones.
Disadvantages: Temptation to withdraw during market dips. Less disciplined approach.
Examples: Axis Children's Gift Fund (No Lock-in), HDFC Children's Fund (without lock-in)
👉 Tip: If you lack investment discipline, choose lock-in variants. The forced holding period often delivers better outcomes than flexible options where investors panic-sell during corrections.
Special Considerations for NRIs
Investing in Indian children's mutual funds as an NRI involves unique considerations that domestic investors do not face.
FATCA Compliance (US/Canada NRIs)
If you reside in the United States or Canada, your fund options are severely limited. Due to the Foreign Account Tax Compliance Act (FATCA), only 8-10 AMCs currently accept investments from US/Canada-based NRIs.
AMCs that accept US/Canada NRIs include: SBI, HDFC, ICICI Prudential, UTI, Aditya Birla Sun Life, L&T, Sundaram, and PPFAS.
Critical Warning for US NRIs: Indian mutual funds are classified as PFICs (Passive Foreign Investment Companies) under US tax law. This can result in punitive taxation of 40-50% on your gains. Consult a cross-border tax advisor before investing.
For US NRIs seeking alternatives, GIFT City investments offer different regulatory treatment worth exploring.
Tax Treatment for NRIs
Children's mutual funds with equity orientation (65%+ in equity) are taxed as follows:
Short-Term Capital Gains (held less than 1 year): 20% TDS
Long-Term Capital Gains (held more than 1 year): 12.5% TDS on gains exceeding Rs 1.25 lakh
India has DTAA agreements with over 90 countries including UAE, UK, Singapore, and Australia. You can claim tax credits in your residence country for taxes paid in India. Read our comprehensive India-UAE DTAA guide for specific provisions.
Currency Risk Consideration
Your child's education fund grows in INR. But you earn in AED, USD, or GBP.
The rupee has depreciated roughly 3-4% annually against major currencies over the past decade. A fund returning 15% in INR effectively returns 11-12% in USD terms after currency depreciation.
Track the rupee's movement using Belong's Rupee vs Dollar Tracker before making investment decisions.
KYC Requirements for NRIs
To invest in children's mutual funds as an NRI, you need:
- Valid passport with visa/OCI
- Overseas address proof
- PAN card (apply online if you do not have one)
- NRE or NRO bank account
- FATCA/CRS declaration
- Video KYC or in-person verification
Complete your mutual fund KYC as an NRI before initiating investments.
Consider GIFT City Alternatives
For NRIs worried about currency risk and tax complexity, GIFT City offers compelling alternatives.
GIFT City (Gujarat International Finance Tec-City) is India's first International Financial Services Centre. It allows NRIs to invest in USD-denominated products.
GIFT City Advantages for Education Planning
Currency Protection: Invest in USD, avoiding rupee depreciation risk.
Tax Benefits: Interest earned on GIFT City fixed deposits is tax-free for NRIs.
Simpler Repatriation: No complex currency conversion when you need the funds.
No PFIC Issues: Unlike Indian mutual funds, GIFT City FDs do not create PFIC complications for US NRIs.
Belong specializes in helping NRIs access GIFT City products. We offer USD fixed deposits, GIFT City mutual funds, and Alternative Investment Funds.
Compare GIFT City FDs with traditional bank FDs to understand which option suits your education planning needs.
👉 Tip: A hybrid approach works well. Use children's mutual funds for rupee-denominated education expenses (Indian colleges) and GIFT City products for USD-denominated expenses (studying abroad).
How Much Should You Invest?
Let us work backwards from your goal.
Scenario: Indian Engineering College
Current cost of 4-year B.Tech: Rs 15 lakhs
Target date: 15 years from now
Assumed education inflation: 10%
Future cost: Rs 62.7 lakhs
Required monthly SIP at 12% returns: Rs 14,500
Scenario: MBA from Top Indian B-School
Current cost of 2-year MBA: Rs 25 lakhs
Target date: 20 years from now
Assumed education inflation: 10%
Future cost: Rs 168 lakhs (Rs 1.68 crore)
Required monthly SIP at 12% returns: Rs 17,000
Scenario: Study Abroad (USD Goal)
Current cost of 4-year US degree: $200,000
Target date: 15 years from now
Assumed education inflation: 5% (US)
Future cost: $415,000
This is where GIFT City USD FDs become relevant. You can build a USD-denominated corpus that does not suffer from INR depreciation.
Making Your Decision
There is no universally "best" children's mutual fund. Your ideal choice depends on:
Time Horizon: If your child is a toddler, you have 15+ years. Aggressive equity-heavy funds make sense. If your child is 12, you have only 6 years. Consider hybrid funds with more debt allocation.
Risk Tolerance: Can you stomach a 30% drop in portfolio value during market crashes? If not, avoid aggressive equity funds regardless of their past returns.
Goal Currency: Indian college fees (INR) or foreign university (USD/GBP)? This determines whether GIFT City alternatives should be part of your strategy.
Country of Residence: US/Canada NRIs face FATCA restrictions and PFIC taxation issues. UAE/UK/Singapore NRIs have more flexibility.
Investment Discipline: If you tend to panic-sell during corrections, choose lock-in variants.
A Practical Approach
Consider splitting your education corpus across multiple buckets:
- Core Children's Fund (60%): SBI Magnum or HDFC Children's Fund for long-term growth
- GIFT City USD FD (25%): For foreign education hedge and currency protection
- Debt Fund/FD Ladder (15%): For years immediately before college when you need capital protection
Read our guide on FD laddering strategy to understand how to structure the debt portion.
Sources
- ICRA Analytics - Children's MF AUM Report December 2025
- Business Today - businesstoday.in
- AMFI India - amfiindia.com
- Value Research Online - valueresearchonline.com
- SBI Mutual Fund - sbimf.com
- HDFC Mutual Fund - hdfcfund.com
- ICICI Prudential AMC - icicipruamc.com
- UTI Mutual Fund - utimf.com
- Tata Mutual Fund - tatamutualfund.com
- ClearTax - cleartax.in
Have questions about which fund suits your child's education goals? Join our WhatsApp community where many NRI parents share their education planning strategies. You can also download the Belong app to explore GIFT City alternatives that protect against currency depreciation.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance does not guarantee future returns. Consult a SEBI-registered investment advisor for personalized advice.
