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You might think, can a minor invest in mutual funds? Yes, they certainly can! While they may be too young to participate in voting or driving, they are certainly capable of beginning their journey into the world of investments.
With a guardian’s help, a minor can venture into mutual funds. This early start can lay the foundation for understanding finances and growing wealth. The concept of compounding and saving is essential to learn early.
So, let’s look at how the young ones can set sail on their financial journey!
Who is a minor?
According to Indian law, a person is deemed to be a minor when they have not yet reached the age of 18.
Recognising the lack of maturity in minors to make certain choices, the law ensures they remain under the guardianship that serves their best interests.
Can a minor invest in mutual funds?
The minimum age to open a demat account is 18 years. So, does that mean your minor child cannot invest in mutual funds?
No, first of all, to invest in mutual funds, a demat account is not compulsory. A minor is permitted to own a demat account, but until they reach the age of majority, a guardian must supervise its operation.
Similarly, a guardian can invest in mutual funds for their minor child.
Initiating an investment in a mutual fund for your underage child has become more straightforward. Earlier, to invest in mutual funds, a bank account in the minor child’s name was mandatory.
Now, according to new regulations, guardians can invest through their bank account or a joint account with their child. Guardians have the freedom to select from various mutual fund plans with no restrictions on the investment amount.
It is essential to note that the mutual fund account will be established solely under the child’s name, who will be the primary and only account holder. This account does not allow for joint ownership. Additionally, only the child’s parents or a legally designated guardian by the court are authorised to act as the guardian on the account.
It is essential to understand that when funds are withdrawn, the redemption proceeds will be credited exclusively to the minor’s bank account.
What does this mean? When you open mutual funds for kids, you may not need a bank account in the child’s name, but at the time of withdrawal, an account is necessary, with complete KYC formalities.
What is the procedure?
The procedure to open an account for mutual fund for your child is:
- You can directly invest money into your kids’ names through a mutual fund house, also known as an Asset Management Company (AMC).
- To get started, you will need a few things: your minor child’s birth certificate, proof of address and proof of your guardianship.
- Up next is the Know Your Customer (KYC) process for yourself as a guardian and also for your child.
- Once your KYC is complete, you are all set to proceed with completing the application forms supplied by the AMC.
- Next, you need to pick a mutual fund for your child. Remember to select ones that match your child’s risk level and long-term goals.
- Finally, you can kickstart the investment process by selecting the appropriate mutual fund scheme and specifying the amount and frequency of investment.
What are the documents required?
To initiate an investment in mutual funds for kids, you need to provide a legitimate document that verifies the child’s age and your relationship with the child.
For age verification, you can provide any of the following documents:
- The minor’s birth certificate or
- Mark sheet or school leaving certificate
- The minor’s passport or
- Any other relevant document.
What if the child reaches the age of majority?
When a kid turns 18, they are legally an adult. Your job as a guardian or parent is to change their sole account holder status from child to adult. If you ignore this, the account freezes, and all transactions stop.
Further, this 18-year-old will now need to take responsibility for taxes as regular investors do. While the child is still a minor, all income and gains from their portfolio are combined with the parent’s income, and the parent is responsible for paying the applicable taxes.
However, in the year the child becomes an adult, they will be considered a separate entity for tax purposes and will be responsible for their own taxes.
Bottomline
In the world of finance, age is just a number! Minors too can invest and embrace financial growth. With some guidance, they can start with mutual funds. This early involvement builds good money habits and begins their wealth journey.
So, why wait? Let’s teach our kids about compound interest and watch their wealth increase as they grow!
FAQs
Yes, a 17 year old can invest in SIP with the help of their guardians. The SIP investment will be established solely under the child’s name, who will be the primary and only account holder. This account does not allow for joint ownership.
To start a mutual fund SIP for your child, you can directly invest money through a mutual fund house. Remember, to collect all the documents and do the KYC process before investing. After KYC, you can open a mutual fund account for your child.
Yes, you can invest in your kids’ name through your bank account. However, a mutual fund account can be opened in the name of the minor child only, who will be the primary and only account holder. You can choose any mutual fund scheme, and there is no limit on how much you can invest.
No, a minor cannot open a demat account. The minimum age to open a demat account is 18 years. A minor is permitted to own a demat account, but until they reach the age of majority, a guardian must supervise its operation.
Yes, a guardian can withdraw money from a minor account. But, remember, when you open a mutual fund account for your kids, you may not need a bank account in the child’s name, but at the time of withdrawal, a bank account is necessary, with complete KYC formalities.
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