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To ensure future financial security and meet higher education expenses, wise parents these days start investing when their children are young. When it comes to mutual fund investments, minors below the age of 18 years can also invest in mutual fund schemes as per the rules of the Securities and Exchange Board of India (SEBI). However, as a legal minor cannot directly operate their own bank account or demat account, these types of investments are always made under the supervision of their parents or legal guardian. In investment documents, the account is primarily in the name of the child, but the entire right to operate it and conduct financial transactions remains with the guardian. The bank account and investment portfolio is operated officially by the guardian until the child attains majority.
Opening a mutual fund account and starting a SIP in the name of a minor child requires some very important KYC documents. First of all, it is mandatory for the child to have a birth certificate or school identity card, which is an authentic proof of his age and name. Along with this, having Aadhaar card and PAN card of the child has also now become a part of the mandatory process, through which financial transparency is maintained. PAN card, Aadhar card and bank account details of the investing parent or guardian also have to be provided so that the transfer of funds can be done safely. Additionally, a joint passport size photograph and signature or thumb impression of the parent and child also has to be verified in the form.
Very clear and strict guidelines have been set regarding bank account for mutual fund investment operated in the name of a minor. As a rule, the bank account used for investing in mutual funds should either be solely in the name of the child or there should be a joint bank account of the parents and the child. In no case is investment directly permitted in the minor’s folio from the individual bank account of the guardian alone. The main objective of this process is to ensure that future investment returns or redemption money are directly transferred to the child’s account only. Additionally, if a third person such as a grandparent or relative wants to gift money to the child in a mutual fund, the process is also completed through the guardian.
When the minor child completes 18 years of age, there is a big and important change in the rules related to mutual fund investment. As soon as the child attains majority, the automatic status of the old mutual fund folio running in his name changes and the parental control is completely lost. After this, the portfolio has to be updated afresh for which the process of ‘Conversion of Minor to Major’ is completed. The youth who is about to attain adulthood has to complete his/her new KYC, submit his/her personal PAN card and bank details so that he/she can manage his/her own investments in future. After completion of this process, the young investor can sell his funds as per his wish, make new investments or carry forward his financial planning without any restriction.
Investing in mutual funds is considered to be the best option today to strengthen the future of your children financially. Keeping in mind the longevity of children and future goals, one gets the full benefit of the power of compounding, due to which even small savings turn into a big fund over time. Investing in equity mutual funds for the long term provides much better and inflation-beating returns compared to FDs or traditional insurance policies. Along with this, parents can be assured of major expenses like children’s higher education, career or marriage by depositing small SIP amounts every month in a disciplined manner. This financial discipline not only secures the future of the children but also provides a strong financial support to the family to deal with any emergency.
