How to Start a Mutual Fund for Minor – Ultimate Guide
How to Start a Mutual Fund for Minor – Ultimate GuideInvesting in mutual funds under a minor’s name is a strategic way to secure your child’s financial future, whether for education, marriage, or other long-term goals. In India, this process is legally permissible and offers both flexibility and tax advantages. Here’s a comprehensive guide to help you get started.
Who Can Invest on Behalf of a Minor?
In India, a minor (anyone under 18 years of age) cannot independently invest in mutual funds. However, a parent or legal guardian can open and manage a mutual fund account on the minor’s behalf. The minor is listed as the sole account holder, while the guardian acts as the custodian until the child reaches adulthood.
Documents Required
To open a mutual fund account for a minor, you’ll need:
- Minor’s Proof of Age: Birth certificate, passport, or Aadhaar card.
- Guardian’s KYC Documents: PAN card, Aadhaar card, and proof of address.
- Proof of Relationship: Documents like the minor’s birth certificate that establish the relationship between the guardian and the minor.
- Bank Account Details: A bank account in the minor’s name, operated by the guardian.
Note: Joint holding is not permitted in a minor’s mutual fund account.
Step-by-Step Process to Start Investing
- Complete KYC Compliance: Ensure both the guardian and the minor are KYC-compliant. This involves submitting the necessary identification and address proofs.
- Open a Mutual Fund Folio: Choose an Asset Management Company (AMC) or a platform that allows investments in a minor’s name. Some platforms may require offline processes, while others offer online facilities .
- Link Bank Account: Associate the minor’s bank account, operated by the guardian, with the mutual fund folio. All transactions will be routed through this account.
- Select Investment Scheme: Opt for mutual fund schemes that align with your financial goals for the child. Consider factors like investment horizon, risk appetite, and expected returns.
- Initiate Investment: Start investing through Systematic Investment Plans (SIPs) or lump-sum investments, based on your preference and financial planning.
Popular Mutual Fund Options for Minors
Several mutual funds are tailored for children’s future needs. These funds often come with lock-in periods and are designed to balance risk and return. Here are some options.
- HDFC Children’s Gift Fund
- SBI Magnum Children’s Benefit Fund
- ICICI Prudential Child Care Plan
These funds typically invest in a mix of equity and debt instruments, aiming for long-term capital appreciation with controlled risk.
Transitioning When the Minor Turns 18
Upon reaching adulthood, the minor must complete the KYC process independently. The mutual fund account will then be transferred to their name, granting them full control over the investments. It’s crucial to update the account status promptly to ensure seamless access and compliance.
Benefits of Investing in a Minor’s Name
- Long-Term Wealth Creation: Starting early allows the power of compounding to work in favor of the investment.
- Tax Efficiency: Income generated is taxed in the hands of the guardian until the minor becomes an adult, potentially offering tax benefits.
- Financial Discipline: Regular investments instill a habit of saving and financial planning.
Points to Consider
- No Joint Holding: Accounts must be solely in the minor’s name with a single guardian.
- Limited Online Options: Not all platforms support online investments for minors; some may require offline procedures.
- Documentation: Ensure all documents are accurate and up-to-date to avoid processing delays.
Investing in mutual funds for your child is a proactive step towards securing their financial future. By understanding the process and making informed choices, you can build a substantial corpus that supports their aspirations and goals.