How to open a mutual fund account for minors? A step-by-step guide

Mutual funds are a popular choice among investors seeking to achieve various financial goals. One of the best aspects of mutual funds is their ability to cater to goal-based investing, such as retirement, buying a house, or funding your child’s education or marriage.

Investing for your children is an important financial goal. It is like planting seeds for a huge tree – you nurture it today, and it provides shade for your children when they grow up. It’s not just about setting aside money; it’s about securing their future. Imagine the relief of having their education or wedding expenses covered, all because you took a few simple steps today. Plus, it gives you the peace of mind that comes with knowing you’re securing their tomorrow.

Can a minor invest in mutual funds?

Anyone under the age of 18 (a minor) can invest in mutual funds with the help of a parent or legal guardian. The minor must be the sole account holder, but since they are not allowed to make financial decisions on their own, a parent or guardian acts as the custodian of the minor’s account. Joint holding is not permitted in a minor’s mutual fund folio. The guardian in the mutual fund folio must either be a natural guardian (i.e., a parent) or a court-appointed legal guardian.

Documents required

Before opening a minor’s mutual fund account, ensure you have the following documents:

• Proof of relationship with the minor (e.g., minor’s birth certificate or passport)
• Minor’s PAN card (if applicable, mostly not required)
• Guardian’s PAN card and KYC details
• Bank proof such as a canceled cheque, passbook, or bank statement (not older than 90 days)
• A photograph of the minor and the guardian

How to open a minor mutual fund account online?

A guardian can invest on behalf of the minor either offline or online. While the offline process involves visiting an asset management company (AMC) or registrar and transfer agent (RTA), the online process can be done through MF Utilities (www.mfuindia.com). Here’s how to get started:

Step 1: Register for a Common Account Number (CAN)

Visit the MF Utilities website and select ‘Open CAN Instantly’ under the ‘For Investors’ tab. Enter the required details like email ID and mobile number, then select ‘New form’. Choose ‘Completely electronic’ as the registration type. Select ‘Single’ as the holding nature and ‘Minor’ as the investor category.

Step 2: Enter minor’s details

Provide the minor’s full name, date of birth, and contact information. Upload proof of identity, such as a birth certificate or passport.

Step 3: Fill guardian’s details

Enter the guardian’s name, relationship with the minor, and PAN card details. Complete the KYC verification by providing an Aadhaar-linked mobile number or scanned documents.

Step 4: Add bank details

Provide the minor’s bank account details or a joint account with the guardian. Upload a canceled cheque or bank statement.

Step 5: Upload documents and submit

Attach scanned copies of required documents. Agree to the terms and submit the application. Once the backend team verifies the documents, a confirmation email will be sent.

After successful registration, create login credentials on the MF Utilities website and start investing in mutual funds for the minor.

What happens when the minor turns 18?

When a minor turns 18, their mutual fund account must be updated to reflect their status as a major. The guardian can no longer operate the account. The following steps must be taken:

• The child must obtain a PAN card and complete KYC compliance.
• Submit a request to the AMC/RTA to update the account status from minor to major.
• Provide proof of age, a fresh KYC form, and updated bank details.
• Once processed, the now-adult child can manage their investments independently.

Tax implications

Until the minor reaches adulthood, all income and gains from their investments are clubbed with the parent’s income, and the parent is responsible for tax payments. Once the child turns 18, they become responsible for paying taxes on their own investment earnings.

Challenges with minor investing

• Lack of nomination: Minor folios cannot have a nominee. In the event of the guardian’s death or disputes between parents, transferring the folio can become complicated.
• Change of guardian: If a new guardian is appointed, they must submit:

1. A request form for a change of guardian.
2. PAN card and KYC details of the new guardian.
3. A canceled cheque from the minor’s registered bank account.
4. Consent letter from the existing guardian or a court order (if applicable)
5. Death certificate of the deceased guardian (if applicable)

• Transitioning to adulthood: When the minor turns 18, they might not be financially savvy enough to manage their investments, leading to potential mismanagement. It is crucial to educate them on financial literacy before they assume control.

Key point to remember

The minor is the actual owner of the investments, not the guardian. Investments can only be made from the minor’s or guardian’s registered bank account. A change in guardian requires extensive documentation and approval. When the minor turns 18, they must complete the KYC process to gain full access to their investments.

Conclusion

Investing in mutual funds for your child’s future is a smart financial move that ensures their long-term security. Opening a minor mutual fund account online is a straightforward process that allows you to systematically invest in their education, marriage, or other life goals. While minor folios have their own set of rules and challenges, proper planning and timely updates ensure a seamless transition when the child becomes an adult. Start early, stay invested, and watch your child’s financial future grow securely over time.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited