Children’s Funds and Their Lock-In Conditions: When Can You Withdraw?
Blog by Aliceblue News Desk
13 November 2026
8 minutes
For fresh investments, a children’s fund locks each purchase for five years from allotment or until the child turns 18, whichever is earlier. You can redeem only after that. Some schemes give an option with no compulsory lock-in, so check which one you hold. SEBI changed this category in 2026, so confirm your scheme’s status with the fund house.
You start saving for your child’s college fees, and a few years later plans change. Can you take the money out? With children’s funds and their lock-in conditions, the usual answer is no, not until the lock-in ends. This guide covers the rule, how SIPs are counted, what happens at 18, and what changed in 2026.
What Is a Children's Fund?
A children’s fund is a mutual fund meant for a child’s future needs, such as college fees. A parent or guardian invests, and the units are held in a folio in the child’s name. A folio is your account with the fund house.
Inside, it holds shares and bonds, like a hybrid fund. HDFC’s children’s fund, for example, invests 65 to 80% of its assets in equity and the rest in debt and money market instruments. The main difference from other hybrid funds is the lock-in. AMFI describes these funds as having a lock-in of at least five years or until the child reaches majority.
How Does a Children's Fund Work?
- Open a folio in the child’s name. The guardian submits proof of the child’s age and relationship, such as a birth certificate or passport.
- Complete KYC. This is a one-time identity check with the guardian’s PAN, address proof, and ID.
- Invest. Choose a lump sum or a SIP. Payment can come from the child’s bank account, the parent’s or guardian’s account, or a joint account with the child.
- Note each allotment date. The lock-in starts on the day units are allotted.
- Wait out the lock-in. You cannot sell before it ends.
- Update the folio when the child turns 18. The account moves from minor to individual status after fresh KYC.
- Redeem. Submit a redemption request. The money does not move on its own.
What Is the Children's Fund Lock-In Period?
The lock-in is the time during which you cannot sell your units. For fresh investments from 23 May 2018, HDFC states it as the earlier of five years from allotment or the child reaching majority.
Older units followed another rule. For investments up to 22 May 2018, where the lock-in was opted for, the period was the later of three years from allotment or majority. This is why some websites still say three years.
Some fund houses offer two options. Tata’s document refers to a “Compulsory Lock-in Option”, and Axis sells its lock-in plan as a separate fund. A plan without a compulsory lock-in may charge an exit load instead. Check which one you are buying.
How Does the Lock-In Work for a SIP?
A SIP is a fixed amount you invest every month. Each instalment is a separate purchase with its own allotment date, so each one has its own lock-in.
Say your child is 8 and you start a ₹5,000 SIP in January 2027. The January units are locked until January 2032, when your child is 13. The February units are locked until February 2032. Each batch becomes eligible for redemption on its own date.
You do not wait for the last instalment before the first batch is free. But you cannot withdraw everything at once while the SIP is still running.
Practical Example With Numbers
The lock-in depends on your child’s age when you invest.
Child’s age when you invest | Age after five years | Lock-in ends |
5 | 10 | After 5 years |
10 | 15 | After 5 years |
14 | 19 | After 4 years, at age 18 |
16 | 21 | After 2 years, at age 18 |
A parent who invests at 16 is locked in for only two years. That is short for a fund with market risk, so money needed soon belongs elsewhere.
Now a return example. Assume the fund grows 10% a year, only to show the arithmetic. This is not a forecast. A ₹1,00,000 lump sum held for five years becomes about ₹1,61,051, a gain of ₹61,051. In a weak market, the value could be lower than what you put in.
What Happens at Age 18?
If your lock-in ends before the child turns 18, you can redeem once it ends. If it runs until 18, the age is what frees the units.
At 18, the account must change from minor to individual status. The new adult completes fresh KYC to continue investing in existing folios, and the AMC sends a notice to the guardian and the child. Ask your fund house what it needs for redemption, and keep the child’s PAN, ID proof, and bank details ready. Start a few months before the birthday.
How Are Children's Fund Gains Taxed?
A children’s fund is not tax-free. Tax depends on the fund’s mix. A fund with 65% or more in domestic shares is treated as equity-oriented.
For an equity-oriented fund, gains on units sold within 12 months are taxed at 20%. Gains on units held longer are taxed at 12.5%, but only on the amount above ₹1.25 lakh in a financial year. In the example above, the ₹61,051 gain is a long-term gain below ₹1.25 lakh. It counts along with the parent’s other long-term equity gains in that year.
While the child is a minor, the child’s income is added to the income of the parent who earns more, under Section 64(1A). The parent can claim an exemption of ₹1,500 or the clubbed income, whichever is less. For example, if ₹6,000 is clubbed, ₹4,500 is added to the parent’s income. Rates can change, so confirm them with a chartered accountant before you file.
What Changed in 2026?
On 26 February 2026, SEBI discontinued the solution-oriented category, which included children’s funds. Fresh subscriptions were to stop, and schemes were to prepare for mergers into similar ones, with SEBI’s approval.
In March 2026, a master circular allowed fund houses to continue children’s funds. A fund house that does so cannot launch a 20-year Life Cycle Fund. Whether your SIP continues depends on your fund house. If it merges the scheme, instalments may stop.
If a merger is approved, units move to a similar scheme at NAV, which is the price of one unit. Investors get advance notice and an exit window. A waiver of exit load is not a waiver of the lock-in, so read the notice to see how locked units are treated.
Features, Advantages and Risks
Features
- The child is the only holder. Joint holding is not allowed.
- Every purchase has its own lock-in.
- A guardian operates the folio until the child turns 18.
- The portfolio mixes shares and bonds.
Advantages
- You cannot sell in a panic during a market fall.
- The goal stays separate from household money.
- A young child gives the investment more years to stay invested.
Risks
- You cannot reach the money in an emergency.
- The lock in limits selling, but it does not limit losses.
- Your scheme may merge, stop SIPs or close to fresh money.
- Clubbing can raise your own tax.
- Expense ratio, the yearly fee a fund deducts, can eat into returns. Compare it with similar funds.
- Some parents stop checking the fund because they cannot sell it anyway.
Children's Fund vs Regular Fund vs Life Cycle Fund
Parameter | Children’s fund | Regular equity or hybrid fund | Life Cycle Fund |
Lock in | Earlier of five years or age 18 | None, except funds such as ELSS | None |
Exit load | NIL in HDFC’s fund | Varies | 3% in year one, 2% in year two, 1% in year three |
Folio holder | Child | You | You |
Asset mix | HDFC: 65 to 80% equity | Varies by fund | Moves from shares to safer assets over time |
2026 status | Depends on the fund house | Open | New category |
A regular SIP kept only for your child’s goal gives similar discipline without the lock in. Use the SIP calculator to find a monthly amount for your target.
Tips, Mistakes and Who It Suits
Tips
- Find the words “lock in” in the scheme document before you pay.
- Ask your fund house if the fund is open, merging or closed to fresh money.
- Keep an emergency fund in a separate account.
- Do not invest money you need within three years.
- Note the allotment date of each instalment.
Mistakes
- Counting five years from the first instalment instead of each allotment date.
- Expecting money to be free at 18 without updating the folio.
- Ignoring which option you hold.
- Treating a merger as the end of the lock-in.
- Skipping the clubbing tax check.
A children’s fund suits parents with a goal at least ten years away who may be tempted to withdraw early. It does not suit people who may need cash soon, want to switch funds often or want fixed returns. They may prefer a regular SIP, a debt fund or a government savings scheme.
Conclusion
Children’s funds lock each investment for five years or until your child turns 18, whichever is earlier. Older units from before 23 May 2018 followed a different rule. At 18, the folio must be updated before you can transact. SEBI’s 2026 changes mean your scheme may continue, stop SIPs, or merge, depending on your fund house. Read your scheme document and latest notice, and estimate the clubbed tax. If you want easy access to your money, a regular SIP may suit you better.
FAQs
Blog by Aliceblue News Desk
