Many parents want to build a corpus for their child before he turns an adult so that it could come handy for higher education.
They often channelise piggy-bank money, small amounts received as gifts on occasions like their birthday, winning a competition, performing well in a sport and so on to mutual funds.Do mutual funds allow investments in the name of a child? How does it work?Yes, every mutual fund house allows investment in any scheme in the name of a minor child, whose age is less than 18 years.
There is no age limit or restriction on the investment amount.The child shall be the first and the sole holder in such a folio.
No joint holder will be allowed in this folio.
The guardian in the folio should be either parent (i.e.
father or mother) or a court-appointed legal guardian.Is the documentation different? What documents would one need?To do any mutual fund investment in a childs name, one needs to submit a valid document of proof of the childs age and your relationship with the child.
Typically you can give a birth certificate, passport copy, etc evidencing date of birth of the minor and relationship of the guardian (natural or legal guardian) with the minor.
This needs to be provided while making the first investment or while opening a folio.
Subsequent investments in the same folio of the same fund house, do not require these documents.
It is mandatory for the guardian to comply with KYC regulations.
If the investment is routed through the parents bank account, you need to submit a third party declaration form.
Alternatively you can directly route these transactions through your childs bank account.Can an investor start a systematic investment plan (SIP) in a childs name?Parents can start an SIP in a folio held by a minor child.However, one must keep in mind that this instruction will be valid only till the date of the minor attaining majority.
After that the SIP will stop, even though the instructions may be for a period beyond that date.How do things change when the child turns 18 years?When the child becomes 18 years old, all SIP/STP in the folio will be suspended.
The folio will be frozen for operation by the guardian from the date of minor attaining majority.
However prior to the minor becomes 18 years old, the fund house will send a notice to unit holder at their registered correspondence address advising the minor to submit, on attaining majority, an application form along with prescribed documents to change the status of the folio from minor to major.
Along with this, KYC acknowledgment letter from the unit holder becoming major should also be provided.