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How to invest in mutual funds in the name of a minor?
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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There is probably no parent in the world who doesn't want to secure their child's future. This could be anything from leaving them an inheritance or making sure they have a corpus for their higher education. One of the best ways to do this is by investing in mutual funds. This could be the SIP (Systematic Investment Plan) route or a lumpsum investment. There might be some doubts in the minds of parents which we are going to try and address in this blog:
Are mutual fund investments allowed in the name of minors?
Yes, they are. Any child below the age of 18 years can invest in a mutual fund under his or her name. The investment in the fund can be of any amount. There is no restriction on the amount that can be invested. This means if any grandparent or other relative gifts the child a substantial amount of money, it can be invested in the fund.
The child will hold the mutual fund portfolio in their name only. There can be no joint holding of the investment unlike a bank account. The portfolio will have a guardian (either parent will do) or one that is appointed by a court.
What is the documentation that is needed for opening a mutual fund investment in a child's name?
The guardian needs to follow the below steps for starting a mutual fund investment in a child's name:
These documents need to be provided when the first investment is made. If there are more mutual fund investments with the same fund house, the guardian doesn't need to provide the documentation again.
What happens when the child turns 18 years?
When the minor turns 18 years of age, the Asset Management Company (AMC) will put a stop to the investments (SIPs) in all mutual funds. The mutual funds will send a letter to the registered address of the guardian and the minor informing them of the same.
The minor will have to change the savings bank account status from minor to major. He/She will then have to follow the same process for his mutual fund account as the AMC will need a set of documents to change the status from minor to individual. Once all the mutual funds are converted to ‘major' accounts, he/she can start re-investing in the same folios.
Mutual funds with their ability to compound money are suitable investment options to build your child's secure future. Setting aside a small amount every month helps your child get a jump start to their education kitty.
Click here to start your investment journey today.
Disclaimer:Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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