Investing In Mutual Funds For A Minor

A minor citizen is one who is below the legal and adult age of 18 years. In the awakening of demonetization, minors had to empty their saved money into the bank account of their parents. Now, why not take an advantage here and try to increment the savings of your minor child? One of the best ways is to invest in mutual funds. Financial graphs have proven that investment in Mutual Funds over an extended period ensures the best return. So secure the future of your minor child from today. Discussed below are the procedures to open a Mutual Fund account for minors.

Mutual Fund for Minors: Basic Rules And Regulations

Many individuals are under a false notion that mutual funds investment for a minor child is not possible. To clear all doubts, it is necessary to state that it is feasible to open a Mutual Fund Account in the name of a minor child. But, it is subject to few rules and regulations as elaborated further.

  • If a Mutual Fund Account is opened for a minor child, he/she should be the sole account holder.
  • The provision of a joint account is absent, and thus there cannot be a joint owner of this account.
  • A guardian is allotted for the Mutual Fund Account of a minor child. The Guardian is the legal parents of the child.

Relevant Documents Required To Open A Mutual Fund Account for a Minor

The following important documents are required to open a Mutual Funds Account for a minor.

  • Date of Birth proof.
  • Age proof which is a birth certificate or the passport for the minor.
  • A documentation proof is stating the relation of the child who is the main account holder to the guardian for the account.

SIP For A Minor

SIP or Systematic Investment Plan has slowly become the most popular way of investing in mutual funds. It ensures great returns and the financial pressure to invest a large amount at once is not valid in the case of a SIP investment. Parents or Guardians will find this an ideal option when investing in mutual funds for a minor child. In this case, SIP-based mutual funds can be registered for a minor for a certain period. However, one compulsion stands.  This investment is valid only till the minor does not become a major ( 18 years and above). If a minor becomes a major, the investment will cease to exist irrespective of the fact that the period of expiry of the investment is remaining. The procedure undertaken in this case is stated next in this article.

Procedure To Undertake When Minor Becomes A Major

As soon as the minor becomes a major, the account transactions on SIP is suspended. The account is frozen, and the guardian is instructed to operate with the funds saved in the account. But if a standard procedure is followed, the minor can convert to a major and continue being the sole proprietor of the Mutual Funds account. Given below are the steps that should be followed when a minor Mutual Funds account holder becomes 18 years of age or a major.

  • The time before the minor becomes a major, the Mutual Funds vendor will send a notice in the name of the minor to the registered address.
  • According to the letter, the minor has to submit an application and supporting documents to change the account holder status to “major.”
  • Apart from the above-stated documents, a KYC Acknowledgement letter must also be submitted as an application for the minor becoming major.

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