SEBI has just changed the rules for Mutual Fund Investment in Name of Minor through a circular on 24 Dec 2019. Yes, the minor child can also invest in mutual funds, by simply fulfilling these guidelines. Here are the details & answers to all questions related to mutual fund investments by a minor.
Let’s also check what happens when the minor becomes a major? And, also, in brief, the taxation on MF investments in the name of a minor.
First of all, let’s be clear that YES – minor can invest in Mutual Funds in India.
Parents or designated guardians can make Mutual Fund Investment in Name of Minor child below 18 years of age.
Rules for investments in mutual funds in name of a minor – Current Provisions
Below are some important points before making an investment in the name of a minor:
Minor shall be the first and the sole holder in an account. There shall not be any joint accounts with minor as the first or joint holder.
Subscriptions can be made by Guardian’s Bank Account (ATTENTION – This got changed by circular dated 24 December 2019. Read below the changes.) Now you need cheque or transfer from Minor’s own bank account.
No more parent’s bank account or guardians bank account allowed.
Guardian in the folio on behalf of the minor should either be a natural guardian (i.e. father or mother) or a court-appointed legal guardian.
2 important documents need to be submitted while making the application.
- One has to submit a relationship proof with the minor.
- Date of birth of the minor along with supporting documents (viz. birth certificate, school leaving certificate/ Mark sheet issued by Higher Secondary Board of respective states, ICSE, CBSE, etc., or, passport or any other document evidencing the date of birth of the minor).
Change in Rules w.e.f. 24 December 2019 related to mutual fund investment in name of minor
The investment will be accepted by the bank account of Minor, Minor through Guardian or Minor Joint with Guardian ONLY. So, the guardian cannot pay from his/her account.
So, to invest in Mutual Funds by a minor, the minor has to HAVE A BANK ACCOUNT FIRST.
In case bank want’s minor’s PAN to open an account you can get that too. Online & offline.
On attaining majority, the folio will be in the name of Minor (now major) as a status category – Individual.
If the parent’s name is there in the bank account, the BANK needs to be changed to child’s name (who is a major now).
If you do not change the bank details the redemption (withdrawal) will get rejected.
MFs companies are making an effort (by letters & emails), to make you aware and take timely steps.
SAMPLE EMAIL – How MF Companies are sending emails to comply with the changes after 24 Dec 2019.
What happens when Minor becomes Major
When the minor attains majority, the guardian can no longer transact on the folio. Below are the important points to be noted when the minor attains majority:
The guardian and the minor will have to submit an application form along with prescribed documents to change the status of the account from “minor” to “major”.
Minor also need to update his KYC on attaining the majority.
In case the requisite documents to change the status are not received by the date when the minor attains majority, the AMC/Mutual Fund Company will not permit any financial and non-financial transactions.
So you cannot have new fresh registration of Systematic Transfer Plan (STP), Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) in the folio after the date of the minor attaining majority till the time the above application form along with the prescribed documents are received.
In case of existing running like SIPs, SWPs, STPs, etc. registered in the minor’s folio for a period beyond the minor’s date of majority, the AMC/Registrar shall not continue to process the existing standing instructions.
As discussed, for investments done before 24 Dec 2019 the bank account can be changed before attaining the majority. In case of running SIP or STP, you need to change it ASAP.
Taxation for Minor Investments in Mutual Funds
As per existing provisions of the income tax act, all income arising in name of minor will be clubbed with the parent or the guardian who is investing in the name of the minor.
(This is me – Yours Truly at Singapore Changi Airport with my daughters – “Clubbed Together” Clicked by my wife)
Hope this will clear how minor can invest in mutual funds in India & parents can benefit by investing in name of minor. Questions or Comments? Please add them in the comments sections below.
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