Can Minor Children Invest in Mutual Funds?

Do you want your child to learn to invest at a young age? Are you looking to teach your children the art of investing in a disciplined way to attain financial independence? You can introduce them to mutual funds at a young age. It helps your minor children under 18 years of age invest in mutual funds with the help of a parent or legal guardian. Your little child will be the sole account holder of the mutual fund, and the legal guardian or parent will have to sign off the mutual fund transactions. How can minor children invest in mutual funds?

Can minor children invest In mutual funds?

Your minor children can invest in mutual funds with the help of a parent or guardian until they turn 18 years. It means that you will invest in mutual funds in your children’s name and represent them by signing off the mutual fund transactions until they are 18 years. However, the ownership rights remain with your children. 

You can represent your minor children for mutual fund transactions until they are 18 years of age. You will then have to send communication to the AMC to change the status of the sole account holder of the mutual fund from Minor to Major. Moreover, if you don’t change the mutual fund account status, all transactions in the account will be stopped automatically when your child turns 18. 

If the mutual fund account is categorised as ‘Minor’, the parent or the legal guardian will have to bear the taxes arising from receiving dividends or mutual fund redemptions. For instance, dividend income from mutual funds in minor children’s names is clubbed with parents income for tax purposes. However, your children will have to bear the tax implications arising from dividend income and redemption of mutual funds in their account on becoming a Major. 

Can minor children invest in any mutual fund?

Your minor children can invest in any mutual fund scheme such as equity, debt or hybrid mutual funds. However, it’s best if you invest in an equity mutual fund in minor children’s names as you have time on your side. 

For example, you could open a mutual fund account in your minor child’s name, who is ten years old. It helps collect money for long-term financial goals such as your child’s higher education on attaining 18 years of age. 

You can invest in mutual funds that are designed specifically for children. For instance, you have solution-oriented funds, such as children’s funds explicitly designed for important financial goals such as child’s education planning. It invests in a mix of equity and fixed income securities and has a lock-in period of five years. 

What are the documents you need to invest in a minor child’s name?

You need two essential documents if you are investing in your minor children’s names. It helps to have a document showing your relationship with your child, such as a birth certificate. 

You need to have copies of the court order if you are the legal guardian of the child. Moreover, both parents and legal guardians investing in a minor child’s name must be KYC-compliant. 

You can invest in the minor child’s name if you are the parent or the legal guardian. However, you will have to follow some rules and regulations and invest in the appropriate mutual fund schemes. In a nutshell, you must invest in minor children’s names if you want to save money for their financial goals. 

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For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in

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