How to invest in a mutual fund in your child’s name?

As part of a financial plan, many parents are keen to save and build a corpus for their children so that the amount saved could be used for purposes such as higher education. Small amounts received as gifts by children on festive occasions, birthdays or for good academic performance could be channelised into mutual funds to create wealth.

Can an investment in a mutual fund be made in a child’s name? how?
Yes, an investment can be made in the name of a child in any scheme in any mutual fund house in the name of a minor child, whose age is less than 18 years. There is no restriction on the investment amount. The investment will be made in the name of the child who shall be the first and sole holder in such a folio. No joint holder will be allowed in this folio. The guardian in the folio can be either the parent (father or mother) or a court-appointed legal guardian.

What kind of documents would you need to make a child’s investment?
To make an investment in a child’s name, an investor has to submit a valid document of proof of the child’s age and your relationship with the child. Typically, 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 works well. These need 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. As per guidelines, payment for the investment by any mode shall be accepted from the bank account of the minor, parent or legal guardian of the minor, or from a joint account of the minor with parent or legal guardian.

Can a systematic investment plan (SIP) or systematic transfer plan (STP) be done in a child’s name?
Parents can start an SIP or STP in a folio held by a minor child. However, this will continue only till the date of the minor attaining majority. Post that the SIP or STP will stop, even though the instructions may be for a period beyond that date.

What do you need to do when the child turns 18 years old?
When the child turns 18, all SIP/STPs in the folio will be suspended. The folio will be frozen for operation by the guardian from the date of minor attaining majority. Post turning 18, the child needs to independently operate the account. Prior to the minor turning 18, the mutual fund will send a notice to the 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’. They also need to submit a KYC acknowledgement letter.